<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SNELLING AND SNELLING, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
PENNSYLVANIA 7363 23-1488679
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
12801 NORTH CENTRAL EXPRESSWAY, SUITE 700
DALLAS, TEXAS 75243
(972) 239-7575
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
J. RUSSELL CREWS
SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER
12801 NORTH CENTRAL EXPRESSWAY, SUITE 700
DALLAS, TEXAS 75243
(972) 776-1417
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
<TABLE>
<C> <C>
KATHERINE M. SEABORN GORDON M. BAVA
RANDALL G. RAY NANCY H. WOJTAS
GARDERE & WYNNE, L.L.P. MANATT, PHELPS & PHILLIPS, LLP
1601 ELM STREET, SUITE 3000 11355 WEST OLYMPIC BOULEVARD
DALLAS, TEXAS 75201 LOS ANGELES, CALIFORNIA 90064
(214) 999-4924 (310) 312-4200
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
=============================================================================================================================
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock, $0.01 par
value................................ 5,750,000 $13.00 74,750,000 $22,652
=============================================================================================================================
</TABLE>
(1) Includes 750,000 shares subject to an over-allotment option granted to the
Underwriters. See "Underwriting."
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a).
---------------------
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 THIS 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
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED OCTOBER 15, 1997
PROSPECTUS
5,000,000 SHARES
[SNELLING LOGO]
COMMON STOCK
------------------
Of the 5,000,000 shares of Class A Common Stock, $0.01 par value per share
(the "Common Stock"), offered hereby, 4,583,333 are being sold by Snelling and
Snelling, Inc. ("Snelling" or the "Company"), and 416,667 are being sold by a
shareholder of the Company ("the Selling Shareholder"). See "Principal and
Selling Shareholders." The Company has two classes of common shares. The Common
Stock is entitled to one vote per share, and the Class B Common Stock, $0.01 par
value per share (the "Class B Common Stock"), is entitled to ten votes per share
(the Common Stock and the Class B Common Stock are collectively referred to as
the "Common Shares"). See "Description of Capital Stock."
There has been no active public market for the common stock of the Company
since 1990. See "The Company." It is currently estimated that the initial public
offering price of the Common Stock will be between $11.00 and $13.00 per share.
See "Underwriting" for information relating to the factors considered in
determining the initial public offering price. The Company has applied for
quotation of the Common Stock on the Nasdaq National Market under the symbol
"SNEL."
------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------
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.
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UNDERWRITING DISCOUNTS PROCEEDS TO PROCEEDS TO SELLING
PRICE TO PUBLIC AND COMMISSIONS(1) COMPANY(2) SHAREHOLDER(3)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
- ------------------------------------------------------------------------------------------------------------------
Total(4)................ $ $ $ $
==================================================================================================================
</TABLE>
(1) The Company and the Selling Shareholder have agreed to indemnify the
several Underwriters named herein (the "Underwriters") against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting estimated expenses of $ payable by the Company.
(3) The Company will not receive any of the proceeds from the sale of the
416,667 shares of Common Stock by the Selling Shareholder.
(4) The Company has granted to the Underwriters a 30-day option to purchase
up to 750,000 additional shares of Common Stock on the same terms and
conditions as set forth above solely to cover over-allotments, if any. If
the over-allotment option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to Company
will be $ , $ and $ , respectively. See
"Underwriting."
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1997, at the offices of Smith Barney Inc., 333 West 34th Street,
New York, New York 10001.
------------------
SMITH BARNEY INC. RAUSCHER PIERCE REFSNES, INC.
, 1997
<PAGE> 3
[Graphics]
Page 2 of the Prospectus consists of a gatefold with graphics. The inside
front cover, seen when first opening the Prospectus, includes a large
Snelling(R) Personnel Services logo on a white background. The first page of the
inside of the gatefold, seen on the left when opening the gatefold, includes the
caption "Providing Integrated, Full-Service Staffing Solutions" in the upper
left corner, three photographs of Snelling offices (each captioned with the
words "Snelling Office" and the city and state located), and a photograph of the
Snelling corporate headquarters (captioned with the words "Snelling Corporate
Headquarters Dallas, Texas". The second page of the inside of the gatefold, seen
on the right when opening the gatefold, includes four photographs representing
Snelling flexible staffing employees (each captioned with the employee's title),
the stabilization language set forth below and the Snelling(R) Personnel
Services logo in the lower right corner.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus, including "Risk Factors,"
and the consolidated financial statements of the Company, including the notes
thereto (the "Consolidated Financial Statements"). Unless otherwise indicated,
(i) all references in this Prospectus to "Snelling" or the "Company" shall mean
Snelling and Snelling, Inc., and its subsidiaries on a consolidated basis, (ii)
the information in this Prospectus gives effect to the reclassification of
Snelling's Common Shares into two classes of common stock and the equivalent of
a 5.415067-for-1 split of the outstanding shares of Class B Common Stock, which
will be effected by an amendment and restatement of the Company's Articles of
Incorporation upon the effectiveness of the registration statement of which this
Prospectus forms a part and (iii) the information in this Prospectus assumes the
Underwriters' over-allotment option will not be exercised.
THE COMPANY
Snelling is a leading national provider of staffing solutions primarily
targeted to small and mid-sized businesses. As of June 30, 1997, the Company
operated as Snelling(R) Personnel Services through a network of 277 franchise
locations and 29 Company-owned branch locations in 42 states, the District of
Columbia and Puerto Rico, as well as three foreign countries, and had executed
agreements for the opening of six additional franchise locations. The majority
of the Company's franchise and branch locations offer the Company's clients
integrated, full-service staffing solutions by providing traditional flexible
staffing, single-source management, temp-to-hire, career placement and other
staffing services from each location.
Founded in 1951, the Company currently provides flexible staffing personnel
for office, clerical and light industrial services. The Company also offers
career placement services in a number of fields, including accounting and
finance, engineering, health care, law, manufacturing, management information
systems and office, sales, marketing and technical services. Flexible staffing
services (which include traditional flexible staffing, single-source management
and temp-to-hire) accounted for approximately 90%, and career placement services
accounted for approximately 10%, of the Company's total system-wide sales for
both the year ended December 31, 1996, and the six months ended June 30, 1997.
The staffing industry has experienced rapid growth over the past decade as
a result of economic trends and changing approaches to staffing and employment.
According to Staffing Industry Report(R), the U.S. staffing industry has grown
from an estimated $31.4 billion in revenues in 1991 to an estimated $74.4
billion in 1996, representing a compound annual growth rate of approximately
19%. Based on this information, 1996 sales generated by flexible staffing
accounted for 66% of the overall staffing market, professional employer
organizations ("PEOs") accounted for 23%, and career placement accounted for
11%. Traditional flexible staffing for office, clerical and industrial services
grew from approximately $12.1 billion in 1991 to approximately $26.4 billion in
1996, representing a compound annual growth rate of approximately 17%. Estimated
sales from career placement (in approximate numbers) grew from $3.9 billion in
1991 to $7.2 billion in 1996, representing a compound annual growth rate of 13%.
Snelling's goal is to enhance its leading position in the staffing industry
through the following business strategy: (i) continue to focus on small and
mid-sized businesses; (ii) offer an integrated, full-service approach to
staffing solutions from each location; (iii) maintain a strong operating
infrastructure; (iv) recruit and retain qualified management and personnel,
including flexible staffing personnel; and (v) control costs through a continued
emphasis on technology and risk management, especially workers' compensation
insurance.
Snelling intends to continue to achieve revenue and earnings growth and
increase market share through the following focused growth strategy: (i) expand
market penetration of its existing franchise and branch locations through
intensive training of sales personnel, investments in technology and the
aggressive pursuit of cross-selling opportunities; (ii) pursue acquisitions of
independent staffing companies and select franchise locations; (iii) establish
alternative distribution channels, such as "co-branding" with other services
providers or retailers; (iv) develop new services, such as PEO services,
internally or through strategic acquisitions of
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related staffing businesses that are complementary to Snelling's business; and
(v) continue to franchise in certain select markets.
ACQUISITIONS
Consistent with its growth strategy, Snelling began an expansion program in
1994 to acquire independent staffing companies and selected franchise locations.
The Company acquired six franchise locations in 1994 with aggregate annual
revenues of approximately $5.9 million; four franchise locations in 1995, with
aggregate annual revenues of approximately $8.0 million; seven independent
staffing locations and nine franchise locations in 1996, with aggregate annual
revenues of approximately $43.6 million; one franchise location in the first six
months of 1997, with annual revenues of approximately $3.5 million; and one
independent staffing location in October 1997, with annual revenues of
approximately $14.4 million. The aggregate consideration paid with respect to
these acquisitions was approximately $28.6 million and was financed using a
combination of cash, seller financing and bank loans. After giving effect to the
consolidation of certain locations of the acquired companies, the Company's
acquisitions have resulted in a net addition of 25 Company-owned branch
locations in 13 states. On an ongoing basis, the Company evaluates opportunities
to acquire companies that are complementary to its business, including
independent staffing companies and selected franchises.
THE OFFERING
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<S> <C>
Common Stock being offered by:
The Company............................. 4,583,333 shares
The Selling Shareholder................. 416,667 shares
Common Shares to be outstanding after the
offering................................ 9,710,199 shares(1)
Voting rights............................. The Common Stock is entitled to one vote per share, and
the Class B Common Stock is entitled to ten votes per
share. See "Risk Factors -- Control of the Company by
the Snelling Family" and "Description of Capital Stock."
Use of proceeds........................... To repay certain indebtedness, to fund future
acquisitions and for working capital and other general
corporate purposes.
Proposed Nasdaq National Market symbol.... SNEL
</TABLE>
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(1) Includes 4,710,199 shares of Class B Common Stock currently issued and
outstanding, which are convertible into shares of Common Stock under certain
circumstances. See "Description of Capital Stock -- Common Shares" regarding
the conversion rights and restrictions on transfer of the Class B Common
Stock. Excludes (i) 2,599,232 shares of Class B Common Stock issuable
pursuant to outstanding options under the Company's 1996 Stock Option Plan
at a weighted average exercise price of $3.85 per share and (ii) 364,163
shares of Class B Common Stock issuable pursuant to options to be granted
under the 1996 Stock Option Plan at the initial public offering price upon
completion of this offering. See "Management -- Stock Option Plans."
4
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SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA)
<TABLE>
<CAPTION>
SEVEN FISCAL SIX MONTHS
FISCAL YEAR MONTHS YEAR ENDED ENDED
ENDED MAY 31, ENDED DEC. 31, JUNE 30,
------------------------------ DEC. 31, ------------------- -------------------
1992 1993 1994 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Revenues.............................. $ 19,023 $ 30,360 $ 70,202 $ 59,309 $122,701 $168,602 $ 73,043 $106,380
Cost of services...................... 8,260 16,330 47,456 40,221 87,943 122,945 52,368 79,440
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit.................. 10,763 14,030 22,746 19,088 34,758 45,657 20,675 26,940
Selling, general and administrative
expenses............................ 11,878 11,832 14,116 8,859 15,384 19,600 8,877 13,594
Franchises' share of gross
profit(1)........................... -- 2,023 8,648 8,659 14,682 19,587 9,319 10,076
-------- -------- -------- -------- -------- -------- -------- --------
Operating profit (loss)....... (1,115) 175 (18) 1,570 4,692 6,470 2,479 3,270
Interest expense...................... 46 34 66 71 379 1,100 384 1,258
Other income.......................... 523 432 348 63 97 105 44 691
-------- -------- -------- -------- -------- -------- -------- --------
Earnings (loss) before income
taxes............................... (638) 573 264 1,562 4,410 5,475 2,139 2,703
Income tax expense (benefit).......... (137) 263 152 704 1,720 2,161 848 1,077
-------- -------- -------- -------- -------- -------- -------- --------
Net earnings (loss)................... $ (501) $ 310 $ 112 $ 858 $ 2,690 $ 3,314 $ 1,291 $ 1,626
======== ======== ======== ======== ======== ======== ======== ========
Net earnings (loss) per Common
Share............................... $ (0.07) $ 0.04 $ 0.02 $ 0.12 $ 0.38 $ 0.48 $ 0.18 $ 0.24
======== ======== ======== ======== ======== ======== ======== ========
Weighted average Common Shares
outstanding......................... 7,121 7,118 7,068 7,012 7,007 6,966 7,001 6,917
======== ======== ======== ======== ======== ======== ======== ========
SELECTED OPERATING DATA:
System-wide sales (in thousands)(2)... $117,693 $175,747 $225,270 $166,340 $318,858 $372,999 $175,243 $206,203
Hours billed (in thousands)(3)........ -- 1,181 5,016 5,058 9,526 13,141 5,739 8,618
Average bill rate(3).................. -- $ 10.20 $ 10.60 $ 10.54 $ 11.29 $ 11.44 $ 11.37 $ 11.84
Gross margin per flexible
employee(3)......................... -- 23.4% 24.6% 23.9% 23.8% 23.2% 23.5% 22.3%
Number of branch locations(4)(5)...... 1 1 2 7 9 29 12 29
Number of franchise locations(4)...... 271 253 248 248 274 277 280 277
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------
AS
ACTUAL ADJUSTED(6)
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<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $14,147 $ 38,787
Total assets................................................ 55,679 78,986
Total debt.................................................. 29,012 2,419
Shareholders' equity........................................ 13,896 63,796
</TABLE>
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(1) The Company has two types of franchises for purposes of flexible staffing
services revenue recognition. With the first type, the Company records
franchise royalties, based on a contractual percentage of flexible staffing
services billings, in the period in which the franchise collects for the
services provided. The second type of franchises participate in the
Company's pay/bill processing program. With the second type, the Company has
a direct contractual relationship with the clients for the services, holds
title to the related receivables and is the legal employer of the flexible
staffing employees. Revenues generated by these franchises and the related
direct costs of services are included as part of the Company's revenues and
costs of services in the period in which the services are provided. The net
distribution paid to franchises participating in the pay/bill processing
program is an operating expense recorded by the Company as franchises' share
of gross profit and is based on either a percentage of the flexible staffing
services billings or a percentage of the gross profit generated. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business -- Organization -- Franchises" and
"Business -- Operations -- Pay/Bill Processing Services."
(2) System-wide sales are equal to the aggregate revenues of all franchise
locations and Company-owned branch locations during the period. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(3) Includes franchise locations participating in the Company's pay/bill
processing program and Company-owned branch locations. See
"Business -- Operations -- Pay/Bill Processing Services."
(4) In operation at the end of the period presented.
(5) Branches consist of Company-owned branch locations (including a California
subsidiary, the assets of which were sold in January 1997) and exclude
franchise locations.
(6) As adjusted to reflect the sale of 4,583,333 shares of Common Stock offered
by the Company hereby at an assumed initial offering price of $12.00 per
share (the mid-point of the filing range) and the application of the net
proceeds as set forth in "Use of Proceeds."
5
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RISK FACTORS
An investment in the shares of Common Stock in this offering involves a
high degree of risk. In addition to the other information in this Prospectus,
the following factors should be carefully considered in evaluating Snelling and
its business before purchasing the Common Stock in this offering. When used in
this Prospectus, the words "anticipate," "estimate," "project," "expect" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain assumptions, uncertainties and risks. Should
one or more of these uncertainties or risks materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated, projected or expected.
ABILITY TO CONTINUE AND MANAGE GROWTH
The Company's plan for growth, both internal and through the acquisition of
other staffing service businesses, is subject to numerous and substantial risks.
The Company's continued growth depends on many factors, including: (i) the
availability of sufficient working capital to support growth; (ii) the Company's
response to existing and emerging competition; (iii) the Company's ability to
maintain its gross margins in the face of competitive pricing pressures and
changing regulatory environments; (iv) the maintenance and expansion of existing
market share; (v) the hiring, integration and retention of qualified managers in
existing markets as well as new markets; (vi) the recruitment of qualified
flexible staffing personnel; (vii) the development of new client relationships;
(viii) the identification of and expansion into new markets; and (ix) the
development of new service offerings. The Company also could experience
unexpected delays or other problems in the opening of new franchise or branch
locations. Any significant delay in the opening of new locations or the failure
of new locations to achieve anticipated performance levels could adversely
affect the Company's operations and growth plans. See "Business -- Business
Strategy" and "Business -- Growth Strategy."
ACQUISITION RISKS
The Company continually evaluates potential opportunities to acquire other
staffing services firms. Over the last few years, the consolidation of companies
in the staffing industry has been rapid and, in many instances, the Company has
competed for acquisitions with other staffing companies that have recently
raised significant capital or otherwise have greater financial resources than
the Company. There can be no assurance that the Company will be able to
successfully identify suitable acquisition candidates, complete acquisitions on
terms favorable to the Company or at all, integrate acquired businesses into its
operations or expand into new markets. Once integrated, acquired firms may not
perform as expected. Acquisitions involve a number of special risks, such as
diversion of management's attention from ongoing operations of the Company,
difficulties in the integration of acquired operations and retention of
personnel, failure of acquired businesses to maintain or increase profitability,
operating in markets in which the Company has little or no prior experience,
legal liabilities, maintenance of uniform standards, controls, procedures and
policies, impairment of relationships with clients of the acquired firm and tax
and accounting issues. Any of these risks could have a material adverse effect
on the Company's financial condition and results of operations. See "Business --
Growth Strategy" and "Business -- Competition."
EFFECT OF FLUCTUATIONS IN THE GENERAL ECONOMY
Demand for staffing services is significantly affected by the general level
of economic activity in the United States. When economic activity slows, many
companies hire fewer full-time employees and decrease their usage of flexible
staffing before undertaking layoffs of their full-time employees. A significant
economic downturn, either on a national basis or in regions of the country where
the Company's operations are heavily concentrated, could have a material adverse
effect on the Company's business and results of operations. Adverse changes in
the economy, however, generally have a more negative impact on career placement
activity than on flexible staffing services. As economic activity increases,
flexible staffing personnel are often added to the workforce prior to the hiring
of full-time employees. During these periods of increased economic activity and
generally higher levels of employment, the competition among staffing firms for
qualified flexible and, to a lesser extent, full-time personnel is intense.
Further, the Company may face increased pricing
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pressures during these periods. There can be no assurance that, during these
periods, the Company will be able to recruit and retain candidates necessary to
satisfy its clients' flexible staffing needs or that these pricing pressures
will not adversely affect the Company's financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
COMPETITIVE MARKET; LIMITED BARRIERS TO ENTRY
The staffing industry is highly competitive and highly fragmented, and
there are limited barriers to entry. The Company competes with international,
national, regional and local companies providing general and specialized
flexible staffing services, particularly with respect to office, clerical and
light industrial services. Some of these companies have substantially greater
financial and marketing resources than the Company. The Company faces
significant competition in the markets it serves and is likely to face
significant competition in any new markets that it may enter. In particular, the
Company believes the developing practice of large national and regional
companies to make centralized purchasing decisions for flexible staffing
services on a national or regional basis will increase competition in certain
markets. This increasing competition could limit the Company's ability to
maintain or increase its market share or maintain or increase its gross margins,
either of which could have a material adverse effect on the Company's financial
condition and results of operations. There can be no assurance that the Company
will be able to maintain or increase the current prices charged to its clients.
Any decrease in prices could materially adversely affect the Company's financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business -- Competition."
AVAILABILITY OF QUALIFIED FLEXIBLE STAFFING PERSONNEL
The Company depends upon its ability to attract and retain qualified
flexible staffing personnel who possess the skills and experience necessary to
meet the staffing requirements of its clients. The Company must continually
evaluate and upgrade its base of available qualified personnel to keep pace with
changing client needs and emerging technologies. The Company competes with other
flexible staffing companies, as well as its clients and other employers, for
qualified personnel. In addition, a substantial number of the Company's flexible
staffing employees during any given year will terminate their employment with
the Company to accept employment with the Company's clients, competitors or
other businesses. There can be no assurance that qualified personnel will
continue to be available to the Company in sufficient numbers and upon economic
terms that are acceptable to the Company. See "Business -- Business Strategy"
and "Business -- Operations -- Recruiting Flexible Staffing Personnel."
INCREASED EMPLOYEE COSTS
Businesses and other organizations use flexible staffing in part to shift
certain employment costs and risks (e.g., workers' compensation and unemployment
insurance) to flexible staffing services companies. Accordingly, the Company is
required to pay a number of federal, state and local payroll and related costs,
including unemployment taxes, workers' compensation insurance, Federal Insurance
Contributions Act ("FICA") and Medicare taxes, among others, with respect to its
flexible staffing personnel. Unemployment taxes are a significant expense to the
Company. Significant increases in the effective rates of any payroll-related
costs would have a material adverse effect upon the Company. The Company is
liable for the first $250,000 of each workers' compensation claim. In addition,
the Company could incur costs related to workers' compensation claims at a
higher rate in the future because of factors such as higher than expected losses
from known claims or an increase in the number and severity of new claims. The
Company's costs could also increase as a result of health care reforms. Recent
federal and state legislative proposals have included provisions extending
health care and other benefits to personnel who currently do not receive these
benefits. These proposals, if enacted, would require the Company to provide
health care benefits to its flexible staffing employees and pay a major portion
of the costs. There can be no assurance that the Company will be able to
increase the fees charged to its clients in a timely manner and in a sufficient
amount to cover increased costs as a result of these proposals or any of the
foregoing. In addition, certain labor unions have recently targeted the
reduction or elimination of part-time employees and third-party staffing
solutions by employers. A substantial increase in labor union
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<PAGE> 9
activity against third-party staffing solution providers could have a material
adverse effect on the financial condition and results of operations of the
Company. There can also be no assurance that the Company will be able to adapt
to future regulatory changes made by the Internal Revenue Service, the
Department of Labor or other state and federal regulatory agencies. See
"Business -- Regulation."
INTANGIBLE ASSETS
As of June 30, 1997, approximately $21.4 million or 38.4%, of the Company's
total assets were intangible assets. These intangible assets are primarily
goodwill related to acquisitions of businesses. Any impairment in the value of
goodwill could have a material adverse effect on the Company's financial
condition and results of operations.
EMPLOYER LIABILITY RISKS
Providers of staffing services employ and place people in the workplaces of
other businesses. Inherent risks include possible claims of errors and
omissions, misuse of client proprietary information, misappropriation of funds,
discrimination and harassment (including claims relating to actions of the
Company's clients), employment of illegal aliens, theft of client property,
other criminal activity, negligence and other claims. In some instances,
pursuant to written contracts with certain clients, the Company is required to
indemnify the clients against some or all of the foregoing matters. A failure of
any Company employee to observe the Company's policies and guidelines intended
to reduce exposure to these risks, relevant client policies and guidelines, or
applicable federal, state or local laws, rules and regulations, or other
circumstances that cannot be predicted, could result in negative publicity,
injunctive relief, payment of monetary damages or fines or have other material
adverse effects upon the Company. Moreover, the Company could be held
responsible for the actions at a workplace of persons not under the direct
control of the Company. Because of the large number of flexible staffing
employees the Company employs, in addition to its corporate employees, the
Company's exposure to such claims may be significantly greater than
comparably-sized companies in other industries. The Company is also exposed to
potential claims with respect to the career placement process. To reduce its
exposure to the foregoing risks, the Company maintains insurance and fidelity
bonds covering general liability, workers' compensation claims, employee theft,
errors and omissions and employment practices liability. There can be no
assurance that the insurance coverage will be available on an economical basis
and in amounts adequate to cover any liability. In addition, the defense of any
legal proceeding could result in substantial expense to the Company and divert
the attention of management from the Company's operations, which could have a
material adverse effect on the Company's financial condition and results of
operations. There also can be no assurance that the Company will prevail in any
legal proceedings brought against it. See "Business -- Operations -- Risk
Management" and "Business -- Legal and Administrative Proceedings."
CONTROL OF THE COMPANY BY THE SNELLING FAMILY
Upon consummation of the sale of the shares of Common Stock in this
offering, Robert O. Snelling, Sr. (the Company's Chairman of the Board and Chief
Executive Officer), the Company's directors and officers who are members of the
Snelling family or spouses of family members and their respective spouses will
beneficially own approximately 47.6% of the outstanding Common Shares and
control approximately 80.0% of the total voting power of the Company. In
addition, Robert O. Snelling, Sr., will beneficially own approximately 12.8% of
the outstanding Common Shares and control approximately 23.9% of the total
voting power of the Company. Shareholders controlling a majority of the total
voting power can elect all of the directors of the Company and can approve,
delay or prevent certain fundamental corporate transactions, including mergers,
consolidations and the sale of substantially all of the Company's assets. For so
long as these shareholders own a significant percentage of the Common Shares,
including a significant percentage of the Class B Common Stock, they will retain
substantial influence over the affairs of the Company which may result in
decisions that do not fully represent the interests of all shareholders of the
Company. These factors, along with the factors described in "Description of
Capital Stock -- Common Shares" and "Description of Capital Stock -- Certain
Provisions of the Charter and By-Laws," may also have the effect of delaying or
8
<PAGE> 10
preventing a change in management or voting control of the Company. See
"Principal and Selling Shareholders."
DEPENDENCE ON KEY PERSONNEL
The success of the Company's business is highly dependent upon the
Company's executive officers and its senior management. The Company is also
dependent on its ability to hire, develop and retain qualified regional and
local managers, as well as on the performance and productivity of its managers.
The Company has entered into noncompetition, nonsolicitation and confidentiality
agreements with its branch managers; however, there can be no assurance that
such agreements will be enforceable in all jurisdictions or for the periods set
forth, or that the Company would not incur significant expense attempting to
enforce these agreements. The loss of key management or the inability of the
Company to attract and retain qualified regional and local management could have
a material adverse effect on the Company's operations and growth. The Company's
continued growth also will depend upon its ability to attract and retain
additional skilled management personnel. See "Management."
FRANCHISING RISKS
During 1996 and the first six months of 1997, the Company's ten largest
franchisees (excluding franchise locations that were acquired by the Company)
accounted for 22.5% and 23.4%, respectively, of the Company's total system-wide
sales. Franchisees typically have the option to terminate their agreements upon
at least six months prior written notice to the Company, resulting in the loss
of franchise revenues and corresponding profitability. In most cases, however,
the Company cannot terminate the franchise agreement without good cause.
Further, while the Company's franchise agreements contain noncompetition
covenants that the Company vigorously seeks to enforce, former franchisees may
nevertheless seek to compete with the Company. The Company's offer and sale of
franchises is regulated by the Federal Trade Commission and by state business
opportunity and franchise laws. The Company will be required to amend its
franchise registrations with certain state governmental authorities as a result
of this offering. Until the Company has appropriately amended its uniform
franchise offering circular, it will not be able to offer or sell franchises in
the respective states. The Company is also subject to the risk of franchisee
litigation pursuant to state business opportunity or franchise laws or
otherwise. See "Business -- Organization -- Franchises" and "Business --
Regulation."
RELIANCE ON MANAGEMENT INFORMATION SYSTEMS
The Company's business depends upon its ability to store, retrieve, process
and manage significant databases, and periodically to expand and upgrade its
information processing capabilities. The interruption or loss of the Company's
information processing capabilities through loss of stored data, breakdown or
malfunction of computer equipment and software systems, telecommunications
failure, conversion difficulties or damage to the Company's headquarters and
systems caused by fire, tornado, lightning, electrical power outage or other
disruption could have a material adverse effect on the Company. The Company is
currently in the process of implementing advanced management information
systems, including a disaster recovery site, but full implementation has not yet
been completed. There can be no assurance that implementation will be completed
in accordance with the Company's current schedule, or at all, or that the
different components of the management information systems will be successfully
integrated. See "Business -- Operations -- Management Information Systems."
LACK OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
There has been no active public market for the Company's common stock since
1990. There can be no assurance that, after this offering, an active public
market for the Common Stock will develop or be sustained or that the market
price for the Common Stock after trading commences will equal or exceed the
initial public offering price set forth on the cover page of this Prospectus.
The market price of the Common Stock could be subject to significant
fluctuations in response to various factors and events, including quarterly
variations in operating results, the liquidity of the market for the Common
Stock and general economic and market
9
<PAGE> 11
conditions. The initial public offering price for the Common Stock in this
offering was determined by negotiation between the Company and the
Representatives of the Underwriters and may bear no relationship to the price at
which the Common Stock will trade after completion of this offering. In
addition, the stock market has experienced substantial price and volume
fluctuations in recent years. These fluctuations have had a significant effect
on the market price of the stock of many companies, often unrelated to the
operating performance of those companies. See "The Company" and "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 5,000,000 shares of
Common Stock and 4,710,199 shares of Class B Common Stock outstanding. There
will also be outstanding employee stock options to purchase an aggregate of
2,963,395 shares of Class B Common Stock. All of the shares of Common Stock,
which are being sold in this offering, will be freely tradeable without
restriction or further registration under the Securities Act, except for shares
purchased by affiliates of the Company. The shares of Class B Common Stock will
be eligible for sale in the public market upon expiration of the applicable
holding periods, or sooner if registered under the Securities Act, and
conversion to shares of Common Stock. The Company, its officers and directors
and certain shareholders (who will collectively own 4,656,605 shares of Class B
Common Stock immediately following this offering) have agreed not to sell or
otherwise transfer any Common Shares for a period of 180 days after the date of
this Prospectus without the prior written consent of Smith Barney Inc. ("Smith
Barney"), one of the Representatives of the Underwriters. Sales of substantial
amounts of Common Stock in the public market following this offering could
adversely affect the market price of the Common Stock. See "Description of
Capital Stock -- Common Shares," "Shares Eligible for Future Sale" and
"Underwriting."
DILUTION
Purchasers of Common Stock in this offering will experience immediate and
substantial dilution in the net tangible book value of their investment. Based
on an assumed initial offering price of $12.00 per share (the mid-point of the
filing range), new investors will experience immediate dilution of $7.63 per
share. See "Dilution."
10
<PAGE> 12
THE COMPANY
Snelling was organized in 1951 as a Pennsylvania general partnership and
incorporated in Pennsylvania in 1956. The Company initially offered career
placement services and in 1954 began providing flexible staffing services.
In 1969, the Company completed an initial public offering of its common
stock, which was quoted on the predecessor to The Nasdaq Stock Market. In 1990,
the Company completed a plan of reclassification whereby all shareholders with
100 or fewer shares were reclassified and their shares were converted into a
right to receive cash. As a result of the reclassification, the number of
shareholders of the Company fell below 300 and the Company ceased to be a
reporting company under the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
The Company's executive offices are located at 12801 North Central
Expressway, Suite 700, Dallas, Texas 75243, and its telephone number is (972)
239-7575.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 4,583,333 shares of
Common Stock offered by the Company in this offering are estimated to be $49.9
million ($58.3 million if the Underwriters' over-allotment option is fully
exercised), assuming an initial offering price of $12.00 per share and after
deducting underwriting discounts and commissions and estimated offering expenses
to be paid by the Company. The Company intends to use approximately $31.1
million of the net proceeds to repay certain outstanding indebtedness. The
remainder of the net proceeds will be used to finance future acquisitions and
for working capital and other general corporate purposes. Pending such uses, the
Company will invest the net proceeds in short-term investment grade money market
instruments such as certificates of deposit or direct or guaranteed obligations
of the United States government.
At June 30, 1997, the Company had approximately $21.9 million in principal
amount of senior indebtedness under its senior secured credit facilities (the
"Senior Credit Facility"). Of this amount, approximately $8.3 million was
outstanding under a revolving facility, which matures on January 31, 2001, and
is used for working capital financing, and approximately $13.6 million was
outstanding under an acquisition facility, which is being amortized over five
years ending on January 31, 2001, and is used to finance a portion of the
Company's acquisitions. In October 1997, the Company acquired an independent
staffing location and used the Senior Credit Facility to finance $4.5 million of
the purchase price. Indebtedness under the Senior Credit Facility bears interest
at floating rates. As of June 30, 1997, the blended interest rate on the Senior
Credit Facility was 8.58%. The Company intends to repay the outstanding
principal balance and accrued and unpaid interest under the revolving facility
and the acquisition facility. Prepayments of the Senior Credit Facility are not
subject to premiums or prepayment penalties. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Business -- Acquisitions."
At June 30, 1997, the Company also had an aggregate of approximately $4.8
million in principal amount of seller-financed indebtedness incurred in
connection with certain of the Company's acquisitions. The Company intends to
repay approximately $4.7 million of this principal amount and accrued and unpaid
interest with the net proceeds. Of the amount to be repaid, approximately $3.5
million remains outstanding under a note issued to the seller in connection with
the Company's acquisition of five franchise locations. This note, which bears
interest at 8.25% per annum, matures on December 31, 2001. Approximately $0.4
million remains outstanding under a seller note issued in connection with the
acquisition of three franchise locations. This note bears interest at 9.25% per
annum and matures on March 17, 1999. Approximately $0.4 million remains
outstanding under a seller note issued in connection with the acquisition of
four independent staffing locations. This note bears interest at 8.25% per annum
and matures on March 31, 2000. Approximately $0.2 million remains outstanding
under a seller note issued in connection with the acquisition of three franchise
locations. This note bears interest at 6.00% per annum and matures on August 1,
1999. Finally, approximately $0.2 million remains outstanding under a seller
note issued in connection with the acquisition of
11
<PAGE> 13
two franchise locations. This note bears interest at 8.00% per annum and matures
on January 31, 2000. Prepayments of these seller notes are not subject to
premiums or prepayment penalties.
The Company will not receive any of the proceeds from the sale of the
416,667 shares of Common Stock by the Selling Shareholder. See "Principal and
Selling Shareholders."
DIVIDEND POLICY
The Company does not anticipate paying any cash dividends on its Common
Shares for the foreseeable future and anticipates that future earnings will be
retained to finance future operations and expansion. The payment of cash
dividends in the future will be at the discretion of the board of directors and
will depend upon such factors as earnings levels, capital requirements, the
Company's financial condition and other factors the board of directors deems
relevant. The Company's Senior Credit Facility prohibits the payment of
dividends by the Company on any Common Shares, other than dividends payable
solely in Common Shares. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
12
<PAGE> 14
CAPITALIZATION
The following table sets forth the Company's capitalization at June 30,
1997, (i) on a historical basis and (ii) on an as adjusted basis to give effect
to the sale by the Company of 4,583,333 shares of Common Stock in this offering
at an assumed initial offering price of $12.00 per share and the application of
the net proceeds as described in "Use of Proceeds." The data set forth below
should be read in conjunction with the other financial information presented
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------
AS
ACTUAL ADJUSTED
------- --------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Cash and cash equivalents................................... $ 2,313 $25,620
======= =======
Short-term borrowings, including current maturities of
long-term debt............................................ $ 2,233 $ 900
======= =======
Long-term debt, less current maturities..................... $26,779 $ 1,519
------- -------
Shareholders' equity:
Preferred Stock, $0.01 par value; 10,000,000 shares
authorized; no shares issued and outstanding........... -- --
Common Stock, $0.01 par value; 100,000,000 shares
authorized; no shares issued and outstanding; 5,000,000
shares issued and outstanding as adjusted(1)........... -- 50
Class B Common Stock, $0.01 par value; 15,000,000 shares
authorized; 5,126,866 shares issued and outstanding;
4,710,199 shares issued and outstanding as
adjusted(2)............................................ 47 47
Capital in excess of par value............................ 197 50,047
Retained earnings......................................... 13,652 13,652
------- -------
Total shareholders' equity........................ 13,896 63,796
------- -------
Total capitalization.............................. $40,675 $65,315
======= =======
</TABLE>
- ---------------
(1) Excludes (i) 1,500,000 shares of Common Stock reserved for issuance under
the Company's 1997 Stock Option Plan, and (ii) 150,000 shares of Common
Stock reserved for issuance under the Company's Non-Employee Director Stock
Option Plan. See "Management -- Stock Option Plans."
(2) Excludes (i) 2,599,232 shares of Class B Common Stock issuable pursuant to
outstanding options under the Company's 1996 Stock Option Plan at a weighted
average exercise price of $3.85 per share, (ii) 364,163 shares of Class B
Common Stock issuable pursuant to options to be granted under the 1996 Stock
Option Plan at the initial public offering price upon completion of this
offering and (iii) an additional 14,891 shares of Class B Common Stock
reserved for issuance under the 1996 Stock Option Plan. See
"Management -- Stock Option Plans."
13
<PAGE> 15
DILUTION
The net tangible book value (deficit) of the Company at June 30, 1997, was
$(7.5) million, or $(1.46) per Common Share. Net tangible book value (deficit)
per share is determined by dividing the Company's tangible net worth (total
tangible assets less total liabilities) by the total number of Common Shares
outstanding. After giving effect to the sale by the Company of the 4,583,333
shares of Common Stock to be sold by the Company in this offering at an assumed
initial offering price of $12.00 per share and the application of the net
proceeds as set forth under "Use of Proceeds," the Company's net tangible book
value at June 30, 1997, would have been $42.4 million, or $4.37 per share. This
represents an immediate increase in net tangible book value of $5.83 per share
to existing shareholders and an immediate dilution of $7.63 per share to new
investors purchasing shares of Common Stock in this offering. The following
table illustrates this dilution per share of Common Stock:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share of Common
Stock.................................................... $12.00
Net tangible book value (deficit) per Common Share before
this offering............................................ $(1.46)
Increase per Common Share attributable to new investors.... 5.83
------
Pro forma net tangible book value per Common Share after
this offering............................................ 4.37
------
Dilution in net tangible book value per share of Common
Stock to new investors................................... $ 7.63
======
</TABLE>
The following table sets forth, on an as adjusted basis as of June 30,
1997, the difference between the Common Shares purchased from the Company by
officers, directors and affiliated persons or entities in the preceding five
years (or which they have the right to acquire) and by new investors in the
offering, including the number of Common Shares purchased, the total cash
consideration and the average price per share paid by the officers and directors
and affiliates and by the new investors (assuming an initial offering price of
$12.00 per share).
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION(1) AVERAGE
------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Officers, directors and
affiliates..................... 2,599,232 36.2% $10,013,180 15.4% $ 3.85
New investors.................... 4,583,333 63.8% 54,999,996 84.6% $ 12.00
--------- ------ ----------- ------
7,182,565 100.0% $65,013,176 100.0%
========= ====== =========== ======
</TABLE>
- ---------------
(1) Consists solely of 2,599,232 shares of Class B Common Stock issuable
pursuant to outstanding options granted to certain of the officers and
directors under the 1996 Stock Option Plan at a weighted average exercise
price of $3.85 per share and assumes the exercise of these options. Excludes
364,163 shares of Class B Common Stock issuable pursuant to options to be
granted under the 1996 Stock Option Plan at the initial public offering
price upon completion of this offering. See "Management -- Stock Option
Plans."
14
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA)
The selected historical financial data presented below for the years ended
May 31, 1992, 1993 and 1994, the seven months ended December 31, 1994, and the
years ended December 31, 1995 and 1996, is derived from the Consolidated
Financial Statements of the Company, which have been audited by Grant Thornton
LLP, independent certified public accountants. The consolidated financial data
for the six months ended June 30, 1996 and 1997, is derived from the unaudited
historical consolidated financial statements. In the opinion of the Company, the
unaudited consolidated financial statements reflect all adjustments, which are
of a normal recurring nature, necessary for a fair presentation of the financial
position and results of operations for the unaudited periods. The results of
operations for the six months ended June 30, 1996 and 1997, are not necessarily
indicative of the results to be expected for a full year. The selected financial
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEVEN FISCAL SIX MONTHS
FISCAL YEAR MONTHS YEAR ENDED ENDED
ENDED MAY 31, ENDED DECEMBER 31, JUNE 30,
------------------------------ DECEMBER 31, ------------------- -------------------
1992 1993 1994 1994 1995 1996(1) 1996(1) 1997
-------- -------- -------- ------------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Revenues.............................. $ 19,023 $ 30,360 $ 70,202 $ 59,309 $122,701 $168,602 $ 73,043 $106,380
Cost of services...................... 8,260 16,330 47,456 40,221 87,943 122,945 52,368 79,440
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit.................. 10,763 14,030 22,746 19,088 34,758 45,657 20,675 26,940
Selling, general and administrative
expenses............................ 11,878 11,832 14,116 8,859 15,384 19,600 8,877 13,594
Franchises' share of gross
profit(2)........................... -- 2,023 8,648 8,659 14,682 19,587 9,319 10,076
-------- -------- -------- -------- -------- -------- -------- --------
Operating profit (loss)....... (1,115) 175 (18) 1,570 4,692 6,470 2,479 3,270
Interest expense...................... 46 34 66 71 379 1,100 384 1,258
Other income.......................... 523 432 348 63 97 105 44 691
-------- -------- -------- -------- -------- -------- -------- --------
Earnings (loss) before income taxes... (638) 573 264 1,562 4,410 5,475 2,139 2,703
Income tax expense (benefit).......... (137) 263 152 704 1,720 2,161 848 1,077
-------- -------- -------- -------- -------- -------- -------- --------
Net earnings (loss)................... $ (501) $ 310 $ 112 $ 858 $ 2,690 $ 3,314 $ 1,291 $ 1,626
======== ======== ======== ======== ======== ======== ======== ========
Net earnings (loss) per Common
Share............................... $ (0.07) $ 0.04 $ 0.02 $ 0.12 $ 0.38 $ 0.48 $ 0.18 $ 0.24
======== ======== ======== ======== ======== ======== ======== ========
Weighted average Common Shares
outstanding......................... 7,121 7,118 7,068 7,012 7,007 6,966 7,001 6,917
======== ======== ======== ======== ======== ======== ======== ========
SELECTED OPERATING DATA:
System-wide sales (in thousands)(3)... $117,693 $175,747 $225,270 $166,340 $318,858 $372,999 $175,243 $206,203
Hours billed (in thousands)(4)........ -- 1,181 5,016 5,058 9,526 13,141 5,739 8,618
Average bill rate(4).................. -- $ 10.20 $ 10.60 $ 10.54 $ 11.29 $ 11.44 $ 11.37 $ 11.84
Gross margin per flexible
employee(4)......................... -- 23.4% 24.6% 23.9% 23.8% 23.2% 23.5% 22.3%
Number of branch locations(5)(6)...... 1 1 2 7 9 29 12 29
Number of franchise locations(5)...... 271 253 248 248 274 277 280 277
</TABLE>
<TABLE>
<CAPTION>
MAY 31, DECEMBER 31,
--------------------------- --------------------------- JUNE 30,
1992 1993 1994 1994 1995 1996 1997
------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................................ $ 3,155 $ 3,860 $ 4,763 $ 4,925 $ 5,466 $ 8,346 $ 14,147
Total assets............................................... 10,954 12,638 15,579 16,015 23,079 52,055 55,679
Total debt................................................. 1,000 475 1,250 1,917 4,776 29,301 29,012
Shareholders' equity....................................... 5,508 5,796 5,793 6,649 9,332 12,326 13,896
</TABLE>
- ---------------
(1) In 1996, the Company made two significant acquisitions, each of which was
accounted for by the purchase method. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations,"
"Business -- Acquisitions" and the pro forma condensed statement of earnings
appearing elsewhere in this Prospectus.
(2) The Company has two types of franchises for purposes of flexible staffing
services revenue recognition. With the first type, the Company records
franchise royalties, based on a contractual percentage of flexible staffing
services billings, in the period in which the franchise collects for the
services provided. The second type of franchises participate in the
Company's pay/bill processing program. With the second type, the Company has
a direct contractual relationship with the clients for the services, holds
title to the related receivables and is the legal employer of the flexible
staffing employees. Revenues generated by these franchises and the related
direct costs of services are included as part of the Company's revenues and
costs of services in the period in which the services are provided. The net
distribution paid to franchises participating in the pay/bill processing
program is an operating expense recorded by the Company as franchises' share
of gross profit and is based on either a percentage of the flexible staffing
services billings or a percentage of the gross profit generated. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business -- Organization -- Franchises" and
"Business -- Operations -- Pay/Bill Processing Services."
(3) System-wide sales are equal to the aggregate revenues of all franchise
locations and Company-owned branch locations during the period. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(4) Includes franchise locations participating in the Company's pay/bill
processing program and Company-owned branch locations. See "Business --
Operations -- Pay/Bill Processing Services."
(5) In operation at the end of the period presented.
(6) Branches consist of Company-owned branch locations (including a California
subsidiary, the assets of which were sold in January 1997) and exclude
franchise locations.
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Selected
Consolidated Financial and Operating Data and the Company's Consolidated
Financial Statements included elsewhere herein.
GENERAL
Snelling is a leading national provider of staffing solutions primarily
targeted to small and mid-sized businesses. As of June 30, 1997, the Company
operated through a network of 277 franchise locations and 29 Company-owned
branch locations in 42 states, the District of Columbia, and Puerto Rico, as
well as three foreign countries, and had executed agreements for the opening of
six additional franchise locations. The Company provides flexible staffing
personnel for office, clerical and light industrial services. The Company also
offers career placement services in a number of fields, including accounting and
finance, engineering, health care, law, manufacturing, management information
systems and office, sales, marketing and technical services. Flexible staffing
services (which include traditional flexible staffing, single-source management
and temp-to-hire), accounted for approximately 90%, and career placement
services accounted for approximately 10%, of the Company's total system-wide
sales for both the year ended December 31, 1996, and the six months ended June
30, 1997.
The Company receives revenues from (i) flexible staffing and career
placement services provided through Company-owned branch locations, (ii)
flexible staffing services provided through franchise locations participating in
the Company's pay/bill processing program and (iii) franchising activities.
Revenues from flexible staffing and career placement services through branch
locations and revenues from flexible staffing services through franchise
locations participating in the Company's pay/bill processing program are
recognized at the time the services are provided. Revenues from franchising
activities consist of initial franchise fees and royalties. Franchise fee
revenues from the sale of franchises are recognized when the franchise begins
operations and a substantial portion of the initial franchise fees are received.
The Company records royalty revenues based on a contractual percentage of the
franchise's cash receipts with respect to (i) flexible staffing services
provided by franchises that do not participate in the Company's pay/bill
processing program and (ii) career placement services provided by any
franchisee. From 1994 through 1996, revenues from franchising activities
declined as a percentage of total revenues, and the Company believes that this
trend will continue as the Company increases the number of branch locations and
the number of franchise locations participating in the Company's pay/bill
processing program.
In 1990, the Company expanded its services available to franchises to
include pay/bill processing services related to their offering of flexible
staffing services. As a result, the Company has two types of franchises for
purposes of flexible staffing services revenue recognition. With the first type,
the Company records franchise royalties, based on a contractual percentage of
flexible staffing services billings, in the period in which the franchise
collects for the services provided. The second type of franchises participate in
the Company's pay/bill processing program. With the second type, the Company has
a direct contractual relationship with the clients for the services, holds title
to the related receivables and is the legal employer of the flexible staffing
employees. Revenues generated by these franchises and the related direct costs
of services are included as part of the Company's revenues and costs of services
in the period in which the services are provided. The net distribution paid to
franchises participating in the pay/bill processing program is an operating
expense recorded by the Company as franchises' share of gross profit and is
based on either a percentage of the flexible staffing services billings or a
percentage of the gross profit generated. As of June 30, 1997, 122 franchise
locations, representing approximately 44% of all franchise locations, and all
branch locations were participating in the Company's pay/bill processing
program. See "Business -- Organization -- Franchises" and
"Business -- Operations -- Pay/Bill Processing Services."
For branch locations and those franchises that participate in the pay/bill
processing program, personnel placed in flexible staffing positions are
employees of the Company. The Company is responsible for the direct costs of the
flexible staffing revenues, including payroll, workers' compensation insurance,
unemployment taxes, FICA and Medicare taxes, other payroll taxes, other general
payroll expenses and commissions. In most
16
<PAGE> 18
circumstances, the Company does not provide health, dental, life or other
insurance benefits to the flexible staffing employees. The Company typically
bills clients for the hourly wages paid to these employees, plus a negotiated
markup. The agreement with the client may also allow for the pass-through of
increases in employee-related expenses, such as workers' compensation insurance
and unemployment taxes. Since the Company generally pays these employees only
for the hours which they actually work, wages and related expenses for flexible
staffing employees are variable costs which fluctuate directly with the related
revenues reported by the Company.
Gross margins for branch locations and for franchise locations
participating in the Company's pay/bill processing program declined in 1995 and
the first six months of 1997 and remained relatively unchanged from 1995 to
1996. These trends are primarily due to an increase in the proportion of the
Company's revenues attributable to light industrial services, which are
traditionally subject to lower markups and margins. Although an increase or
decrease in the gross margin for these franchise locations affects the Company's
overall gross margin, there is no material impact on the Company's operating
income as a percentage of total revenues. Such changes result in approximately
offsetting increases or decreases in franchises' share of gross profit, an
operating expense.
GROWTH AND EXPANSION
In recent years, the Company has expanded its operations through internal
growth, acquisitions and the sale of new franchises. System-wide sales have
increased from $263.1 million for the twelve months ended December 31, 1994, to
$373.0 million for the year ended December 31, 1996, representing a compound
annual growth rate of approximately 19%.
From January 1, 1994, through June 30, 1997, the Company established a net
total of 29 branch locations through the acquisition of seven locations from
independent staffing companies, the acquisition of 20 locations from existing
franchises, the opening of five new locations, the consolidation of three
locations and the sale of substantially all the assets of its California
subsidiary. Of the 29 branch locations, 10 were acquired or opened in the last
three months of 1996. All acquisitions completed by the Company have been
accounted for under the purchase method of accounting. The Consolidated
Financial Statements include the operating results of the acquired businesses
from the date of acquisition. In October 1997, the Company acquired one location
from an independent staffing company.
The Company has also expanded by continuing to franchise in certain select
markets. During the years ended December 31, 1995 and 1996, the Company added a
net total of 26 and three franchise locations, respectively. As of June 30,
1997, the Company had executed agreements for six additional franchise locations
to be opened throughout the remainder of 1997.
17
<PAGE> 19
RESULTS OF OPERATIONS
The following table sets forth for the indicated periods certain historical
financial data derived from the Consolidated Financial Statements and indicates
the percentage of total revenues represented by each item.
<TABLE>
<CAPTION>
TWELVE MONTHS FISCAL YEAR ENDED DEC. 31, SIX MONTHS ENDED JUNE 30,
ENDED --------------------------------------- --------------------------------------
DEC. 31, 1994 1995 1996 1996 1997
----------------- ------------------ ------------------ ----------------- ------------------
DOLLARS PERCENT DOLLARS PERCENT DOLLARS PERCENT DOLLARS PERCENT DOLLARS PERCENT
------- ------- -------- ------- -------- ------- ------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................. $91,920 100.0% $122,701 100.0% $168,602 100.0% $73,043 100.0% $106,380 100.0%
Cost of services.......... 62,702 68.2 87,943 71.7 122,945 72.9 52,368 71.7 79,440 74.7
------- ----- -------- ----- -------- ----- ------- ----- -------- -----
Gross profit............ 29,218 31.8 34,758 28.3 45,657 27.1 20,675 28.3 26,940 25.3
Selling, general and
administrative
expenses................ 15,290 16.6 15,384 12.5 19,600 11.7 8,877 12.1 13,594 12.7
Franchises' share of gross
profit.................. 12,831 14.0 14,682 12.0 19,587 11.6 9,319 12.8 10,076 9.5
------- ----- -------- ----- -------- ----- ------- ----- -------- -----
Operating profit........ 1,097 1.2 4,692 3.8 6,470 3.8 2,479 3.4 3,270 3.1
Interest expense.......... 102 0.1 379 0.3 1,100 0.6 384 0.5 1,258 1.2
Other income.............. 197 0.2 97 0.1 105 0.1 44 -- 691 0.6
------- ----- -------- ----- -------- ----- ------- ----- -------- -----
Earnings before income
taxes................. 1,192 1.3 4,410 3.6 5,475 3.3 2,139 2.9 2,703 2.5
Income tax expense........ 537 0.6 1,720 1.4 2,161 1.3 848 1.1 1,077 1.0
------- ----- -------- ----- -------- ----- ------- ----- -------- -----
Net earnings.............. $ 655 0.7% $ 2,690 2.2% $ 3,314 2.0% $ 1,291 1.8% $ 1,626 1.5%
======= ===== ======== ===== ======== ===== ======= ===== ======== =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Revenues. Total revenues were $106.4 million for the first six months of
1997 compared to $73.0 million for the same period in 1996, an increase of
45.6%. Revenues from branch locations increased 134.8% to $35.4 million in the
1997 period from $15.1 million in the 1996 period. This substantial increase in
branch revenues was attributable to a combination of internal sales growth and
acquisitions, which resulted in an increase in the number of branches to 29
locations at June 30, 1997, up from nine locations at December 31, 1995.
Flexible staffing revenues from franchise locations participating in the
Company's pay/bill processing program increased 23.8% to $67.0 million in the
first six months of 1997 from $54.1 million in the 1996 period. Revenues from
franchising activities increased to $3.9 million in the first six months of 1997
from $3.8 million for the prior period. This increase in revenues from both
branch and franchise locations reflected increased sales and marketing
activities and strong market conditions.
Gross Profit. Gross profit for the first six months of 1997 was $26.9
million compared to $20.7 million in the first six months of 1996, an increase
of 30.3%. The gross margin for the first six months of 1997 was 25.3% compared
with 28.3% for the 1996 period. The decrease in gross margin is primarily
attributable to three factors: (i) the decrease in revenues from franchising
activities, which have only minimal associated costs, as a percentage of total
revenues; (ii) the implementation of a national accounts program on a limited
basis; and (iii) an increase in the proportion of the Company's revenues
attributable to light industrial services. These factors were partially offset
by the Company's continued emphasis on reducing costs, especially the costs of
risk management and unemployment taxes. Favorable risk management trends
resulted in a reduction in cost of services of approximately $1.1 million and
$0.2 million for the first six months of 1997 and 1996, respectively. The
reduction was principally attributable to improved claims experience on workers'
compensation and other insurance coverages.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the first six months of 1997 totaled $13.6 million
compared to $8.9 million in the first six months of 1996, an increase of 53.1%.
As a percentage of total revenues, selling, general and administrative expenses
for the first six months of 1997 were 12.7% compared to 12.1% in the 1996
period. Of the increase in selling, general and administrative expenses in the
1997 period, approximately $3.0 million was directly attributable to the 18 new
branch locations opened or acquired since June 30, 1996. The remainder was
primarily due to continued infrastructure development relating to the
implementation of new information systems and technology.
18
<PAGE> 20
Franchises' Share of Gross Profit. Franchises' share of gross profit
increased to $10.1 million for the first six months of 1997 from $9.3 million in
the 1996 period. This increase was the result of an increase in flexible
staffing revenues from franchise locations participating in the pay/bill
processing program.
Interest Expense. Interest expense increased to $1.3 million for the first
six months of 1997 from $0.4 million in the 1996 period. The increase is
primarily due to borrowings related to acquisitions and additional working
capital requirements as a result of the rapid increase in total revenues.
Other Income. Other income for the first six months of 1997 included a gain
of approximately $0.7 million resulting from the January 1997 sale of
substantially all of the assets of a subsidiary that provided union personnel
for flexible staffing assignments at chemical and refinery operations in
California (the "California subsidiary").
Income Tax Expense. Income tax expense was $1.1 million (an effective rate
of 39.8%) for the first six months of 1997 compared with $0.8 million (an
effective rate of 39.6%) for the 1996 period. See Note (9) to the Consolidated
Financial Statements for an explanation of the increase in the effective income
tax rate.
Net Earnings. Net earnings for the six months ended June 30, 1997, were
$1.6 million compared with $1.3 million for the same period in 1996, an increase
of 25.9%. Net earnings as a percentage of total revenues decreased to 1.5% in
the 1997 period from 1.8% in the 1996 period.
FISCAL YEAR ENDED DECEMBER 31, 1996, COMPARED TO FISCAL YEAR ENDED DECEMBER
31, 1995
Revenues. Total revenues were $168.6 million for 1996 compared to $122.7
million for 1995, an increase of 37.4%. Revenues from branch locations increased
73.4% to $39.0 million in 1996 from $22.5 million in 1995. This substantial
increase in branch revenues was attributable to a combination of internal sales
growth and acquisitions, which resulted in an increase in the number of branches
to 29 locations at December 31, 1996, up from nine locations at the end of 1995.
Flexible staffing revenues from franchise locations participating in the
Company's pay/bill processing program increased 31.2% to $121.1 million in 1996
from $92.3 million in 1995. Revenues from franchising activities increased to
$8.2 million in 1996 from $7.8 million for 1995. This increase in revenues from
both branch and franchise locations reflected increased sales and marketing
activities and strong market conditions.
Gross Profit. Gross profit for 1996 was $45.7 million compared to $34.8
million in 1995, an increase of 31.4%. The gross margin for 1996 was 27.1%
compared with 28.3% for 1995. The decrease in gross margin is primarily
attributable to two factors: (i) the decrease in revenues from franchising
activities, which have only minimal associated costs, as a percentage of total
revenues; and (ii) the implementation of a national accounts program on a
limited basis. These factors were partially offset by the Company's emphasis on
reducing costs, especially the costs of risk management and unemployment taxes,
along with improved pricing of services to clients. Favorable risk management
trends resulted in a reduction in cost of services of approximately $0.5 million
for 1996, which was primarily attributable to improved claims experience on
workers' compensation and other insurance coverages. No similar reduction
occurred in 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for 1996 totaled $19.6 million compared to $15.4 million
in 1996, an increase of 27.4%. As a percentage of total revenues, selling,
general and administrative expenses for 1996 were 11.7% compared to 12.5% in
1995. This decrease in selling, general and administrative expenses as a
percentage of total revenues reflected increased operating leverage as a result
of the Company's investments in information systems and technology . Of the
increase in selling, general and administrative expenses in 1996, approximately
$2.9 million was directly attributable to the increase in the number of branch
locations, including the hiring of new personnel. The remainder was primarily
due to continued infrastructure development relating to the implementation of
new information systems and technology.
Franchises' Share of Gross Profit. Franchises' share of gross profit
increased to $19.6 million for 1996 from $14.7 million in 1995. This increase
was the result of an increase in flexible staffing revenues from franchise
locations participating in the pay/bill processing program.
19
<PAGE> 21
Interest Expense. Interest expense increased to $1.1 million in 1996 from
$0.4 million in 1995. The increase was primarily due to additional borrowings
related to acquisitions and working capital requirements as a result of the
rapid increase in total revenues.
Income Tax Expense. Income tax expense was $2.2 million (an effective rate
of 39.5%) for 1996 compared with $1.7 million (an effective rate of 39.0%) for
1995. See Note (9) to the Consolidated Financial Statements for an explanation
of the increase in the effective income tax rate.
Net Earnings. Net earnings for 1996 were $3.3 million compared with $2.7
million in 1995, an increase of 23.2%. Net earnings as a percentage of total
revenues decreased to 2.0% in 1996 from 2.2% in 1995.
FISCAL YEAR ENDED DECEMBER 31, 1995, COMPARED TO TWELVE MONTHS ENDED DECEMBER
31, 1994
Revenues. Total revenues were $122.7 million for 1995 compared to $91.9
million for 1994, an increase of 33.5%. Revenues from branch locations increased
72.8% to $22.5 million in 1995 from $13.0 million in 1994. This substantial
increase in branch revenues is attributable to a combination of internal sales
growth and the full-year effect in 1995 of the acquisition of five franchise
locations in late 1994, as well as a net addition of two branch locations during
1995. At December 31, 1995, the Company had nine branch locations compared to
seven branch locations at the end of 1994. Flexible staffing revenues from
franchise locations participating in the Company's pay/bill processing program
increased 28.6% to $92.3 million in 1995 from $71.8 million in 1994. Revenues
from franchising activities increased to $7.8 million in 1995 from $6.6 million
in 1994. This increase in revenues from both branch and franchise locations
reflected increased sales and marketing activities and strong market conditions.
Gross Profit. Gross profit for 1995 was $34.8 million compared to $29.2
million in 1994, an increase of 19.0%. The gross margin for 1995 was 28.3%
compared with 31.8% for 1994. The decrease in gross margin is primarily
attributable to three factors: (i) an increase in the proportion of the
Company's revenues attributable to light industrial services; (ii) declining
performance by the California subsidiary, the assets of which were sold in
January 1997; and (iii) the decrease in revenues from franchising activities,
which have only minimal associated costs, as a percentage of total revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for 1995 totaled $15.4 million compared to $15.3 million
in 1994. As a percentage of total revenues, selling, general and administrative
expenses for 1995 were 12.5% compared to 16.6% in 1994. This decrease in
selling, general and administrative expenses as a percentage of total revenues
reflected increased operating leverage as a result of the Company's investments
in information systems and technology and an overall effort by the Company with
respect to cost control and reduction. The level of selling, general and
administrative expenses was relatively unchanged in 1995 despite the full-year
effect of 1994 acquisitions and additional acquisitions in 1995.
Franchises' Share of Gross Profit. Franchises' share of gross profit
increased to $14.7 million for 1995 from $12.8 million in 1994. This increase
was the result of an increase in flexible staffing revenues from franchise
locations participating in the pay/bill processing program.
Interest Expense. Interest expense increased to $0.4 million in 1995 from
$0.1 million in 1994. The increase was primarily due to additional working
capital requirements as a result of the rapid increase in total revenues, the
use of capitalized leases to finance certain capital expenditures and borrowings
related to acquisitions.
Income Tax Expense. Income tax expense was $1.7 million (an effective rate
of 39.0%) for 1995 compared with $0.5 million (an effective rate of 45.1%) for
1994. See Note (9) to the Consolidated Financial Statements for an explanation
of the increase in the effective income tax rate.
Net Earnings. Net earning for 1995 were $2.7 million compared with $0.7
million in 1994, an increase of 310.9%. Net earnings as a percentage of total
revenues increased to 2.2% in 1995 from 0.7% in 1994.
20
<PAGE> 22
QUARTERLY RESULTS AND SEASONALITY
The following table sets forth selected quarterly unaudited financial
information for 1995, 1996 and the six months ended June 30, 1997. The Company
believes that such information reflects all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the information set
forth below. The operating results for any quarter are not necessarily
indicative of the results of any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------------------------
1995 1996 1997
--------------------------------------- --------------------------------------- ------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $24,161 $26,411 $28,120 $44,009 $33,744 $39,299 $43,799 $51,760 $49,479 $56,901
Cost of services..... 16,785 18,514 20,272 32,372 24,213 28,155 31,247 39,330 37,124 42,316
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit....... 7,376 7,897 7,848 11,637 9,531 11,144 12,552 12,430 12,355 14,585
Selling, general and
administrative
expenses........... 3,663 3,778 3,879 4,064 4,262 4,615 5,067 5,656 6,634 6,960
Franchises' share of
gross profit....... 3,106 2,879 2,686 6,011 4,320 4,999 5,516 4,752 4,676 5,400
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating profit... 607 1,240 1,283 1,562 949 1,530 1,969 2,022 1,045 2,225
Interest expense..... 45 104 115 115 149 235 218 498 629 629
Other income......... 23 18 28 28 21 23 10 51 684 7
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings before
income taxes..... 585 1,154 1,196 1,475 821 1,318 1,761 1,575 1,100 1,603
Income tax expense... 265 479 465 511 327 521 716 597 434 643
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net earnings......... $ 320 $ 675 $ 731 $ 964 $ 494 $ 797 $ 1,045 $ 978 $ 666 $ 960
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Net earnings per
Common Share....... $ 0.05 $ 0.09 $ 0.11 $ 0.13 $ 0.07 $ 0.11 $ 0.15 $ 0.15 $ 0.10 $ 0.14
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
The volume of career placement services provided by the Company's franchise
and branch locations tends to fluctuate directly with general economic trends,
with volume increasing during periods of economic growth and declining or
growing at a slower pace during recessionary periods. Flexible staffing
services, although affected to some extent, are less subject to fluctuation
based on the overall economy than career placement services. The Company has,
however, historically been subject to quarterly and seasonal fluctuations in
demand for flexible staffing services, especially as a result of summer and
holiday employment trends. Revenues from flexible staffing services and related
net earnings are generally at their lowest levels during the first quarter of
the year and increase throughout the remainder of the year, peaking in the last
two quarters of the year. While the staffing industry is cyclical, the Company
believes that the broad geographic coverage of its operations and the diversity
of services it provides generally mitigate the adverse effects of economic
cycles in a single industry or geographic region.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $14.1 million, $8.3 million and $5.5
million at June 30, 1997, December 31, 1996 and December 31, 1995, respectively.
The Company's cash flow and working capital requirements are affected primarily
by the payment of wages to flexible staffing employees, who are paid weekly, and
by the receipt of payments from clients, which are generally received 30 to 60
days after billing. Because of seasonal fluctuations, accounts receivable are
historically higher during the fourth quarter of the fiscal year and are
generally at their lowest level during the first fiscal quarter.
The Company's operating activities provided net cash of $1.3 million in the
six months ended June 30, 1997, used net cash of $2.1 million in 1996, and
provided net cash of $1.9 million in 1995. The negative cash flow from operating
activities in 1996 relates primarily to the additional investment in working
capital (accounts receivable and prepaid expenses) resulting from the increase
in the number of branch locations during 1996 and the additional working capital
required to fund the increased volume of franchises' flexible
21
<PAGE> 23
staffing services processed through the Company's pay/bill processing program.
The Company has historically met its cash requirements through a combination of
internally generated funds and bank debt.
Investing activities of the Company provided net cash of $0.8 million in
the first six months of 1997 and used net cash of $11.7 million in 1996 and $3.5
million in 1995. For 1997, investing activities included approximately $1.9
million received upon the sale of the California subsidiary. During the first
six months of 1997, in 1996 and in 1995, the Company invested in acquisitions
with an aggregate purchase price (plus related expenses) of $0.9 million, $19.3
million and $1.4 million, respectively. The aggregate purchase price (plus
related expenses) for the 1996 acquisitions included cash payments of $9.8
million, $7.5 million of which was funded under the acquisition facility of the
Company's Senior Credit Facility. The balance was funded from internal cash flow
and the revolving facility of the Senior Credit Facility. Seller-financed debt
was utilized for the remaining $9.5 million of the aggregate purchase price in
1996. The Company also had capital expenditures of $0.2 million, $2.0 million
and $2.5 million during the first six months of 1997, in 1996 and in 1995,
respectively. These capital expenditures primarily related to the development of
the Company's new integrated management information system and the upgrading of
the hardware required to support the system. The total cost of the project is
currently estimated at $9.0 million, $5.3 million of which had already been
expended as of June 30, 1997. The remaining cost of the project is expected to
be funded through a combination of internally generated cash, operating leases
and borrowings under the Senior Credit Facility throughout 1997 and 1998.
The Company's financing activities used net cash of $0.3 million for the
first six months of 1997 and provided net cash of $14.0 million and $1.7 million
in 1996 and in 1995, respectively, as a result of advances under its Senior
Credit Facility in the 1997 period and 1996 and advances under a previous
revolving credit line in 1995.
During 1996, the Company negotiated its Senior Credit Facility, which
expires in January 2001, with BankBoston, N.A. ("BankBoston"). The Senior Credit
Facility, which was amended in July 1997, currently provides for a maximum
revolving facility of $22.5 million (based on the Company's eligible
receivables) and an acquisition facility of $25.0 million. The Company's ability
to request additional advances under the acquisition facility terminates on
January 31, 1998. Mandatory repayment of amounts borrowed under the Senior
Credit Facility is based on excess cash flow (as defined in the Senior Credit
Facility) for the acquisition facility and on the daily available bank clearings
for the revolving facility. Mandatory quarterly repayments based on a five-year
amortization are also required for the acquisition facility. However, all
payments due on the acquisition facility are required to be funded from the
revolving facility. Optional prepayments are allowed, and any remaining unpaid
balance on either facility is due in January 2001. At the Company's option,
interest is calculated based on a combination of the following: (i) BankBoston's
base rate or the London Interbank Offered Rate ("LIBOR") plus (ii) from 0.5% to
3.0% depending on the facility and certain financial ratios of the Company. At
June 30, 1997, the Company had approximately $21.9 million in principal amount
outstanding under the Senior Credit Facility, of which $8.3 million was
outstanding under the revolving facility and $13.6 million was outstanding under
the acquisition facility. In October 1997, the Company acquired an independent
staffing location and used the Senior Credit Facility to finance $4.5 million of
the purchase price. The average rate at June 30, 1997, was 8.73% on the
acquisition facility and 8.33% on the revolving facility. The Senior Credit
Facility requires the Company to pay a commitment fee from 0.375% to 0.500% per
annum on the unused amount of the credit line. As of June 30, 1997, the Company
had $17.2 million of availability on the Senior Credit Facility. The Senior
Credit Facility also includes financial covenants regarding the Company's
working capital, consolidated net worth, earnings coverage to debt, interest and
fixed charges and limitations on annual capital expenditures. Borrowings under
the Senior Credit Facility are collateralized by substantially all of the
Company's assets, along with an agreement that provides for the pledge by
certain shareholders of the Company of at least 50% of the voting power of the
outstanding Common Shares.
The Company's acquisition program will continue to require significant
additional capital resources. The Company intends to seek capital as necessary
to fund acquisitions through one or more funding sources that may include bank
financing or the issuance of debt or equity securities or both. Cash flow from
operating activities, to the extent available, may also be used to fund
acquisitions. Although management believes that
22
<PAGE> 24
the Company will be able to obtain sufficient capital to fund acquisitions,
there can be no assurance that sufficient capital will be available to the
Company at the time it is required or on terms acceptable to the Company.
The Company believes that the net proceeds from this offering, combined
with internally generated cash flow and borrowings under its Senior Credit
Facility, will satisfy working capital and capital expenditure requirements for
the foreseeable future.
INFLATION
The Company believes the effects of inflation have not had a significant
impact on the results of operations or financial condition.
ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." This
Statement establishes standards for computing and presenting earnings per share
("EPS") and applies to entities with publicly held common stock or potential
common stock. SFAS No. 128 is effective for financial statements issued for
periods ending after December 15, 1997; earlier application is not permitted.
SFAS No. 128 requires restatement of all prior-period EPS data presented. The
Company does not believe that the adoption of SFAS No. 128 will have a material
effect on the Company's earnings per share.
23
<PAGE> 25
BUSINESS
GENERAL
Snelling is a leading national provider of staffing solutions primarily
targeted to small and mid-sized businesses. As of June 30, 1997, the Company
operated as Snelling(R) Personnel Services through a network of 277 franchise
locations and 29 Company-owned branch locations in 42 states, the District of
Columbia and Puerto Rico, as well as three foreign countries, and had executed
agreements for the opening of six additional franchise locations. The majority
of the Company's franchise and branch locations offer the Company's clients
integrated, full-service staffing solutions by providing traditional flexible
staffing, single-source management, temp-to-hire, career placement and other
staffing services from each location.
Founded in 1951, the Company currently provides flexible staffing personnel
for office, clerical and light industrial services. The Company also offers
career placement services in a number of fields, including accounting and
finance, engineering, health care, law, manufacturing, management information
systems and office, sales, marketing and technical services. Flexible staffing
services (which include traditional flexible staffing, single-source management
and temp-to-hire) accounted for approximately 90%, and career placement services
accounted for approximately 10%, of the Company's total system-wide sales for
both the year ended December 31, 1996, and for the six months ended June 30,
1997.
The Company supports its franchises and branches with a number of corporate
programs, including ongoing training programs, management information systems
support and risk management services. The Company also provides its franchises
and branches with pay/bill processing services to support payroll and billing
activities and working capital needs related to their offering of flexible
staffing services.
INDUSTRY
The staffing industry has experienced rapid growth over the past decade as
a result of economic trends and changing approaches to staffing and employment.
According to Staffing Industry Report(R), the U.S. staffing industry has grown
from an estimated $31.4 billion in sales in 1991 to an estimated $74.4 billion
in 1996, representing a compound annual growth rate of approximately 19%. Based
on this information, 1996 sales generated by flexible staffing accounted for 66%
of the overall staffing market, PEOs accounted for 23% and career placement
accounted for 11%. According to Staffing Industry Report(R), estimated sales for
flexible staffing have increased (in approximate numbers) from $21.8 billion in
1991 to $49.0 billion in 1996, representing a compound annual growth rate of
18%. Traditional flexible staffing for office, clerical and industrial services
grew from approximately $12.1 billion in sales in 1991 to approximately $26.4
billion in 1996, representing a compound annual growth rate of 17%.
The use of flexible staffing, the largest staffing category, has become
widely accepted by businesses as a valuable tool for managing personnel costs,
supplementing full-time workforces, meeting specialized or fluctuating
employment requirements and selectively recruiting permanent employees through a
temp-to-hire evaluation process. Vacations, illness, resignations and periodic
fluctuations in work volume have historically created demand for flexible
staffing. More recently, the growing cost and difficulty of hiring, laying off
and terminating full-time workers and the desire by businesses to better control
their employee costs has also encouraged a greater use of flexible staffing by
businesses. In addition, employees have become increasingly receptive to
flexible staffing opportunities, which enable them to develop skills in a
variety of work environments and maintain more flexible schedules to meet
personal demands.
Professional employer organizations ("PEOs"), also known as employee
leasing companies, comprise the second largest sector in the staffing industry.
A PEO establishes a "co-employer" relationship with its clients and
contractually assumes substantial employer responsibilities with respect to
worksite employees, including human resource administration, employment
regulatory compliance, workers' compensation coverage, health care and other
employee benefits. The outsourcing of one or more of these various functions to
a PEO benefits clients by allowing them to focus on their core business and
manage their employee-related risks. Because a PEO enters into agreements with
numerous small and mid-sized clients, it can achieve economies of scale and
perform employment-related functions at a level typically available only to
large corporations that have
24
<PAGE> 26
substantial resources devoted to human resource management. According to
Staffing Industry Report(R), estimated sales in the PEO industry have increased
(in approximate numbers) from $5.0 billion in 1991 to $17.3 billion in 1996,
representing a compound annual growth rate of 28%.
The career placement market continues to grow, but at a lower rate than
other sectors of the staffing industry and the industry generally. Estimated
sales from career placement (in approximate numbers) grew from $3.9 billion in
1991 to $7.2 billion in 1996, representing a compound annual growth rate of 13%.
Fundamental changes in the employer-employee relationship continue to occur,
with employers developing increasingly stringent criteria for selecting
permanent employees while moving towards project-oriented flexible staffing and
contract hiring. As a result, career placement has taken on a more specialized
and limited role in the staffing process.
The Company believes that the staffing services industry is highly
fragmented and is currently experiencing a trend towards consolidation as a
result of several factors, including increasing competition and the growing
importance of economies of scale and working capital to support increased demand
for alternative staffing services by small companies and centralized staffing
services by large companies.
BUSINESS STRATEGY
Snelling's goal is to expand its position as a leading national provider of
staffing solutions to small and mid-sized businesses. The Company believes that
its strong reputation and brand name recognition will support the Company in
achieving its business strategy, which is comprised of the following key
elements.
Focus on Small and Mid-Sized Businesses. The Company focuses on providing
office, clerical and light industrial staffing solutions to small and mid-sized
businesses, generally with less than 500 full-time employees. According to the
latest data published by U.S. Bureau of the Census, businesses with less than
500 employees comprised the fastest growing business sector in the United States
in 1993. The Company believes that small and mid-sized businesses typically seek
value-added personnel services offered at fair market prices as opposed to
larger businesses that emphasize price and request volume discounts. The Company
believes that it has developed competitive advantages in servicing small and
mid-sized businesses by tailoring its operations to meet local client needs and
by establishing strong client relationships through local marketing efforts,
quality service and community involvement.
Offer Integrated, Full-Service Approach. The Company uses an integrated,
full-service approach to staffing by generally providing its clients with a wide
range of staffing services from each location. This integrated, full-service
approach is designed for small and mid-sized businesses that have fewer
personnel resources than larger companies. With this approach, branch and
franchise locations design customized service packages to meet the client's need
for flexibility in service delivery. This approach also provides clients with
the opportunity to choose from a menu of services that includes employee
screening, applicant testing, credit checks, personality evaluation, drug
testing, on-site supervision, single-source management and temp-to-hire options,
as well as contingency career search services. The Company emphasizes building
long-term relationships with its clients by assuming an ongoing role in the
overall service needs of its flexible staffing and career placement clients.
Maintain Strong Operating Infrastructure. The Company seeks to enhance the
success of its business by maintaining a strong operating infrastructure to
support its entrepreneurial network of franchise and branch locations. The
Company devotes significant resources to the development, establishment and
continuing review of operating systems and procedures for use in the day-to-day
operations of its franchises and branches to ensure the consistent delivery of
quality services to the Company's clients. Snelling supports local operations
through a number of corporate programs, including training, management
information systems development and support, risk management and marketing and
advertising services. The Company also provides franchises and branches with
pay/bill processing services to support payroll and billing activities and
working capital needs related to their offering of flexible staffing services.
Recruit and Retain Qualified Management and Personnel. A key component of
the Company's success is its ability to attract and retain qualified management
and personnel, including flexible staffing personnel. The
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Company strives to recruit and retain high quality corporate management and
branch personnel and to attract qualified and motivated franchisees. Each
franchise and branch location manager is provided with recruiting materials and
training on how to recruit qualified full-time employees in key positions. The
Company also seeks to recruit, screen and maintain a pool of qualified flexible
staffing personnel for entry-level positions. Each franchise and branch location
is provided with a proprietary recruiting manual that outlines use of recruiting
materials, advertising and activities designed to increase applicant flow and
retention and the benefits of participating in community activities. In addition
to the attraction of its strong reputation and brand name, the Company has
developed a system of promotions, employee testing and evaluation in order to
maintain and expand its pool of qualified personnel needed to satisfy ongoing
client demand.
Control Costs Through Emphasis on Risk Management. Given the nature of
flexible staffing services, employee-related costs incurred by the Company are
significant and workers' compensation insurance is the principal component of
these costs. Recognizing that workers' compensation and other insurance
coverages are controllable costs, the Company created a dedicated risk
management department in 1994. The Company provides risk management support to
branch locations and franchise locations participating in its pay/bill
processing program, which is focused on safety and loss prevention to control
employee-related costs. The Company's risk management department also
administers a master insurance program for participating locations. The Company
believes that its emphasis on controlling these costs enables its branches and
participating franchises to price their services competitively.
GROWTH STRATEGY
Snelling intends to achieve revenue and earnings growth and increase market
share through a focused growth strategy employing the following five key
elements:
Increase Market Penetration and Profitability at Existing Locations. The
Company has experienced significant internal growth and believes that a
substantial opportunity exists to further increase its market penetration and
profitability at its existing franchise locations and branch locations. The
Company intends to achieve continued internal growth in sales and profitability
by capitalizing on increasing economies of scale and through ongoing investment
in information systems and technology, intensive training of sales personnel and
aggressive pursuit of cross-selling opportunities.
Pursue Acquisitions. The Company intends to capitalize on the significant
opportunities available in the staffing industry to increase its sales and
market share through acquisitions in new and existing markets. The primary focus
of the Company will be to expand branch locations through acquisitions, with a
long-term objective of achieving an equal number of franchise locations and
branch locations. Additionally, the Company plans to pursue strategic
acquisitions of staffing services businesses that offer complementary services,
thereby expanding its range of services offered. The Company will also consider
selective acquisitions of existing franchise locations. During 1996 and the
first six months of 1997, the Company acquired seven independent staffing
locations and ten franchise locations, with aggregate annual revenues of
approximately $47.1 million. In October 1997, the Company acquired one
independent staffing location with annual revenues of approximately $14.4
million.
Establish Alternative Distribution Channels. The Company intends to
evaluate and establish, where appropriate, alternative distribution channels for
its services. An example of an alternative distribution channel is
"co-branding," which strategically links the Company with another services
provider or a retailer in order to exploit marketing synergies. In 1996, the
Company developed a co-branding relationship with Wal-Mart, Inc. ("Wal-Mart"),
through which the Company opens both branch and franchise locations in selected
Wal-Mart Supercenters, giving Snelling access to the high volume of potential
flexible staffing employees passing through a Wal-Mart store. As of June 30,
1997, the Company had also executed agreements for four additional franchise
locations to be opened in Wal-Mart Supercenters. The Company intends to develop
further its relationship with Wal-Mart and may pursue other co-branding
opportunities as they arise.
Develop New Services. The Company seeks to add or further develop new
staffing services to complement its existing service offerings and expand its
existing client relationships. As an example, the Company seeks to develop a PEO
service offering. The Company also intends to expand services, such as
single-source
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management, which it currently provides on a limited basis. Single-source
management gives the Company the opportunity to establish long-term
relationships with clients and to generate a stable and recurring source of
revenue. Further development of new services may be accomplished internally or
through acquisitions.
Expand Through Selective Franchising. The Company intends to continue to
franchise in certain select markets. Through franchising, the Company is able to
broaden its geographic coverage and leverage its existing business with minimal
capital investment. The Company plans to direct the expansion of its franchise
program primarily toward the penetration of smaller markets. During 1996 and the
first six months of 1997, the Company franchised a net addition of nine new
locations. As of June 30, 1997, three were open and the remaining six were
scheduled to be opened throughout the remainder of 1997.
ACQUISITIONS
Consistent with its growth strategy, Selling began an expansion program in
1994 to acquire independent staffing companies and selected franchise locations.
The Company acquired six franchise locations in 1994 with aggregate annual
revenues of approximately $5.9 million; four franchise locations in 1995, with
aggregate annual revenues of approximately $8.0 million; seven independent
staffing locations and nine franchise locations in 1996, with aggregate annual
revenues of approximately $43.6 million; one franchise location in the first six
months of 1997, with annual revenues of approximately $3.5 million; and one
independent staffing location in October 1997, with annual revenues of
approximately $14.4 million. The aggregate consideration paid with respect to
these acquisitions was approximately $28.6 million and was financed using a
combination of cash, seller financing and bank loans. After giving effect to the
consolidation of certain locations of the acquired companies, the Company's
acquisitions have resulted in a net addition of 25 company-owned branch
locations in 13 states. On an ongoing basis, the Company evaluates opportunities
to acquire companies that are complementary to its business, including
independent staffing companies and selected franchises.
The following table lists each of the Company's acquisitions since January
1, 1996, the acquired company's or franchise's estimated annual revenues and the
geographic markets served by the acquired locations:
<TABLE>
<CAPTION>
ESTIMATED
RELATIONSHIP REVENUES NUMBER OF GEOGRAPHIC
SELLER DATE ACQUIRED TO COMPANY (IN MILLIONS) LOCATIONS MARKETS SERVED
------ ------------- ------------ ------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Cross Temp, Inc.; Cross Personnel Oct. 1997 Independent $14.4 1 New York, NY
Agency, Inc.
JW Personnel, Inc. May 1997 Franchise 3.5 1 West Palm Beach, FL
Help, Inc.; A Help, Inc.; Temp Help, Dec. 1996 Independent 5.6 4 Omaha, NE and Council
Inc. Bluff, IA
B.A.T. Holdings, Inc.; KAL Help Nov. 1996 Franchise 18.3 5 Chicago, IL and
Enterprises, Inc.; Par Three Help Kalamazoo, MI
Services, Inc.; Par Four Services,
Inc.; Par Five Services, Inc.
Fidelity Personnel Services, Inc. Sept. 1996 Independent 6.0 1 Blountville, TN
Personnel Professionals of the Sept. 1996 Independent 4.5 1 Albany, NY
Northeast, Ltd.
Careers Unlimited, Inc. Aug. 1996 Independent 3.5 1 Raleigh-Durham, NC
Richard W. Conley/Timothy J. Crouser Aug. 1996 Franchise 0.9 1 Lancaster, PA
R. C. Management, Inc. Mar. 1996 Franchise 4.8 3 Kansas City, MO and
----- -- Overland Park, KS
Total: $61.5 18
===== ==
</TABLE>
SERVICES
Snelling provides staffing services to over 13,000 businesses, professional
and service organizations, and governmental entities in the United States
through the Company's franchise locations and Company-owned branch locations
participating in its pay/bill processing program. The majority of the Company's
franchise and
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branch locations offer the Company's clients integrated, full-service staffing
solutions by providing traditional flexible staffing, single-source management,
temp-to-hire, career placement and other staffing services from each location.
Flexible staffing services (which include traditional flexible staffing,
single-source management and temp-to-hire) accounted for approximately 90% of
the Company's total system-wide sales during each of 1995, 1996 and the first
six months of 1997.
Traditional Flexible Staffing. The Company places flexible staffing
personnel who perform office services and light industrial services. Office
services include general office and clerical positions, such as accounting
assistants, bookkeepers, legal secretaries, administrative assistants, data
processors, typists, receptionists, file clerks, mail clerks and messengers, as
well as other specialized functions. Light industrial work consists of skilled
tasks for nearly every industry, including, engineering, construction,
electronics, manufacturing, warehouse, distribution, delivery and retail.
Traditional flexible staffing personnel may be assigned for either a
specified or indefinite period of time as necessary to meet the needs of
clients. Snelling may provide flexible staffing in response to a continuing
client need or for specific project or peak-period requirements. Through the use
of Snelling's flexible staffing personnel, clients are able to avoid much of the
expense and inconvenience related to recruiting employees, including
advertising, interviewing and testing, conducting reference and background
checks and drug testing. The Company's clients are also able to eliminate or
reduce record keeping and decrease expenses associated with full-time employees,
such as fringe benefits, turnover and related employee costs. A client pays only
for actual hours worked by flexible staffing personnel and may terminate the use
of flexible staffing services without the adverse effects of layoffs.
Single-Source Management. The Company provides single-source management
services to businesses with a high volume of staffing needs, including national
accounts. This program usually requires the regular presence of a dedicated
Snelling manager on-site at the client's facility. Single-source management
encompasses every facet of coordinating, ordering, planning and tracking all
supplemental staffing personnel, including flexible staffing employees placed by
the Company's competitors. Single-source management represents a cost-effective
solution for employers in industries that require a variable workforce and that
spend a significant amount of administrative and personnel department time
managing employees whose jobs are generally routine and are characterized by
high turnover rates. Examples of the types of clients that might utilize a
single-source management program include customer service centers, distribution
centers, manufacturing and assembly facilities and communications call centers.
Temp-to-Hire. Temp-to-hire is an extension of traditional flexible staffing
that is intended to lead to the placement of permanent employees. Temp-to-hire
affords the client the opportunity to work with and evaluate an employee before
making a permanent hiring commitment. Using this staffing service, the client is
also able to limit traditional recruitment and screening costs. At the same
time, the flexible staffing employee is provided with an opportunity to evaluate
the job duties and understand the client's culture and expectations before
committing to a full-time position.
Career Placement Services. Since 1951, Snelling has provided career
placement services for businesses searching for new full-time employees. As a
result of its years of experience, the Company has developed extensive
recruiting and search capabilities, interview and assessment processes and
information verification procedures designed to result in the placement of
quality candidates that fit its client's needs. The Company provides career
placement services in a number of fields, including accounting and finance,
engineering, health care, law, manufacturing, management information systems and
office, sales, marketing and technical services.
SALES AND MARKETING
Snelling believes it is uniquely positioned to differentiate its services
from most of its competitors by offering integrated, full-service staffing
solutions to its clients, which are predominantly small and mid-sized
businesses. The full-service concept allows the Company to meet its client's
total staffing needs, including flexible staffing, single-source management,
temp-to-hire, career placement and other staffing services from each location.
The Company believes that a majority of its competitors focus on career
placement or flexible staffing, but have not integrated the delivery of these
services from each location.
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The Company generates new clients through personal sales presentations,
telemarketing, direct mail solicitations, referrals from other clients and
advertising in a variety of local and national media, including the Yellow
Pages(R), newspapers, magazines and trade publications and the Internet. The
Company's advertising supplements local advertising efforts by Snelling's
franchises and branches. The Company also actively sponsors various community
activities (including, for example, co-sponsoring seminars on human resource-
related issues) in order to increase brand name recognition. The Company's
management personnel are encouraged to participate in national trade
associations, local chambers of commerce and other civic organizations and
conduct public relations activities.
In 1996 and the first six months of 1997, approximately 13,000 and 9,000
clients, respectively, purchased services from the Company through its
Company-owned branch locations and franchise locations participating in the
Company's pay/bill processing program. The Company's clients are not
concentrated in any industry group or any region of the country. During 1995,
1996 and the first six months of 1997, the Company's top ten clients in the
aggregate accounted for approximately 11%, 17% and 22%, respectively, of the
Company's revenues. In each of the same periods, the largest single client
(which varied from period to period) accounted for approximately 5% of the
Company's revenues in each period.
The Company's franchise and branch locations devote the majority of their
selling efforts to small and mid-sized businesses. Snelling provides sales and
marketing training to both its franchise and branch locations through corporate
franchise and branch support staffs at the Company's headquarters and in the
field. The support staffs assist local managers in developing sales
opportunities and improving marketing skills.
The Company also has implemented a national accounts unit on a limited
basis to supplement local sales and marketing. The national accounts unit
targets the single-source management market for large national and international
corporations that is not accessible by individual branch and franchise
locations. The national accounts unit is responsible for lead generation and the
preparation and presentation of proposals for franchise locations and branch
locations. Local franchise and branch locations then provide the service and
sales support for large national clients.
The Company has begun to establish alternative distribution channels for
its services. One such distribution channel is "co-branding," which
strategically links the Company with another services provider or a retailer in
order to exploit marketing synergies. In 1996, the Company developed a
co-branding relationship with Wal-Mart to open both branch and franchise
locations through the leasing of space in selected Wal-Mart Supercenters. This
relationship provides Snelling with access to the high volume of potential
flexible staffing employees passing through a Wal-Mart store as a source of
flexible staffing personnel. For Wal-Mart, a Snelling(R) Personnel Services
location provides an additional attraction to draw customers into the
Supercenter. Pursuant to a master lease, Wal-Mart leases space to the Company
for a Snelling location at a Wal-Mart Supercenter, typically for a three-year
term with a renewal option for an additional three years. The Company may
sublease space to franchisees on identical terms. At June 30, 1997, the Company
had three branch locations and three franchise locations in Wal-Mart
Supercenters. The Company has also executed agreements for four additional
franchise locations to be opened in Wal-Mart Supercenters. Snelling's master
lease arrangement with Wal-Mart is not exclusive, and Wal-Mart is not obligated
to enter into any specific location leases. Wal-Mart has entered, and may enter
in the future, similar co-branding relationships with one or more of the
Company's competitors. The Company is, however, free to pursue other co-branding
opportunities. There can be no assurances that the Company will be able to
continue its co-branding relationship with Wal-Mart or to lease space in
additional Wal-Mart Supercenters.
The Company collects an advertising fee from most of its franchisees equal
to 0.5% of cash receipts related to franchise flexible staffing service sales
and 1.0% of cash receipts related to franchise career placement sales. The
Company also contributes an advertising fee at the same rates on behalf of each
of its branches. These advertising fees are placed in a national advertising
fund, which the Company administers. The national advertising fund may be used
to advertise in various media and to promote public relations and is intended to
maximize general public recognition and acceptance of the Snelling brand name to
improve the collective success of the Snelling system. Costs paid out of the
national advertising fund include salaries and other costs of the Company's
corporate marketing department related to national advertising efforts. A
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<PAGE> 31
marketing committee of the franchisee's National Executive Council has been
established to provide advice to the Company with respect to the use of the
national advertising fund, but the Company has sole discretion as to the use of
the fund. The Company may also terminate the fund at any time after all monies
have been expended. See "-- Organization -- Franchises."
ORGANIZATION
As of June 30, 1997, Snelling offered its staffing services through a
network of 306 locations, 29 of which were branch locations owned and operated
by the Company and 277 of which were franchise locations owned and operated by
franchisees. The Company has a long-term objective of achieving an even mix
between the number of franchise and branch locations.
Branches. The Company is committed to the expansion of its operations
through the acquisition and opening of new Company-owned branch locations. As of
June 30, 1997, Snelling had 29 Company-owned branch locations in 13 states.
During 1996 and the first six months of 1997, the Company added a net total of
20 new branch locations. For the six months ended June 30, 1997, approximately
98% of branch revenues were derived from flexible staffing services.
A typical branch location covers 800-1,200 square feet and is staffed with
a branch manager, two account managers and two personnel managers. The branch
manager is generally responsible for sales and operations and reports to one of
four area directors, who have responsibility for marketing, sales, training and
recruiting for a specific group of branch locations. The account managers are
responsible for sales, and the personnel managers are in charge of recruiting
flexible and career personnel.
Franchises. At June 30, 1997, the Company operated through 277 franchise
locations in 42 states, the District of Columbia, Puerto Rico, and three foreign
countries. The Company earns revenue from the sale and continuing operation of
franchises. Upon the sale of a franchise, the Company currently recognizes
initial franchise and training fees of $21,000 when the franchise begins
operations and the fees are collected. The Company has added a net total of
three new franchise locations since the beginning of 1996. The Company has also
executed agreements for six additional franchise locations scheduled to be
opened throughout the remainder of 1997.
At June 30, 1997, the Company had 199 franchisees, each of whom had
executed one or more franchise agreements with Snelling that set forth their
respective rights and obligations. Although franchise agreements differ
depending on when the franchise was sold, recently executed franchise agreements
generally provide that the clients serviced by the franchisee and the flexible
staffing employees placed by the franchisee are clients and employees,
respectively, of the Company or become such immediately upon termination of the
franchise agreement.
Snelling franchises differ from typical franchises in two significant
respects. First, a franchisee does not receive an exclusive territory for its
operations and, second, the franchise is granted for as long as the franchisee
continues to operate it. The Company has a right of first refusal with respect
to the sale of a franchise and, in certain limited circumstances, such as the
death of a franchisee or a controlling owner, an option to purchase the
franchise. A franchise agreement is, however, subject to termination by the
Company or the franchisee in certain circumstances, including breaches of the
franchise agreement by the franchisee. A franchisee typically may terminate the
franchise agreement upon at least six months prior written notice and the
satisfaction of certain other obligations. Most of the Company's existing
franchise agreements prohibit the franchisee from competing with Snelling within
a defined geographic area for a period of two years after any termination. The
Company's current form of franchise agreement contains a two-year noncompetition
covenant pursuant to which a terminated franchisee will not contact or do
business with any existing Snelling client or operate any personnel services
business within a ten-mile radius of the franchisee's location or locations.
The majority of franchise fee revenues are generated by royalties on the
continuing operations of the franchises. The Company receives monthly royalties
that are generally 4.5% of the flexible staffing services sales and 7.0% of the
career placement sales collected by franchisees each month. In order to
encourage
30
<PAGE> 32
franchisees to place flexible staffing employees on Snelling's national
accounts, which typically result in lower gross margins than the other clients
serviced by the franchises, the franchisee will receive a percentage of the
gross margin of the national account billing. For those franchisees who use the
Company's pay/bill processing services, the related royalties are deducted from
their distribution payments on a weekly basis. The remaining royalty payments
from the franchisees are payable monthly and are due within ten days following
the end of each month. The Company also collects an advertising fee equal to
0.5% of franchise flexible staffing services sales and 1.0% of franchise career
placement sales. See "-- Sales and Marketing" and "-- Operations -- Pay/ Bill
Processing Services."
The Company has a sales incentive program, which encourages franchisees to
earn a reduction of their effective royalty rate based on the total sales
generated by the franchise. This program currently reduces the effective royalty
received by the Company to approximately 4.0% of flexible staffing sales
collected and approximately 6.0% of career placement sales collected. The
Company will discontinue this program as of January 1, 1998. The Company is
exploring alternative incentive programs for implementation in 1998.
Snelling offers franchises to qualified individuals and entities to operate
one or more full-service Snelling(R) Personnel Services locations. Franchises
may be sold either to open a new location or convert an existing, independent
staffing business. The Company supplies a franchise with a proprietary system of
management and personnel services training, operational procedures and
techniques, advertising and promotional programs and materials and record
keeping and reporting procedures for operating a Snelling(R) Personnel Services
location. The Company also grants a franchise a nonexclusive license to use
Snelling's registered service marks in connection with the operation of the
franchise location. The Company has a franchise support department to assist
franchises with training and business consulting.
Since 1957, the Company has maintained a National Executive Council ("NEC")
made up of 16 franchisee members elected by regions and one representative of
the Company in order to facilitate its relationships and communications with
franchisees. The purpose of the NEC, which generally meets twice a year, is to
act as an advisory group to the Company in the promotion and growth of the
Company's services. Each franchisee owner in good standing, regardless of the
owner's percentage ownership, is entitled to one vote per owned franchise
location for each NEC vacancy to be filled from the owner's region. The Company
believes that its relationships with its franchisees are good.
OPERATIONS
Training of Franchise and Branch Personnel. The Company provides initial
and continuing training to franchise and branch personnel through its "Snelling
University" training courses at the Company's headquarters in Dallas, Texas.
Training programs are generally two weeks in length. Initial training courses
cover a wide range of topics, including sales, operations, telemarketing, human
resources (including recruitment and retention of qualified personnel), sales
management, training, motivation and goal setting, financial management, risk
management, computer software and customer service. A new franchisee and the
manager of the new franchise location, if any, must attend and complete this
initial training program to the Company's satisfaction. Ongoing training is also
provided to other franchise and branch location personnel. Continuing education
is not mandatory for all personnel; however, each local manager is requested to
attend additional training at Snelling headquarters every 24 months.
The Company offers continuing education courses at varying times and at
various locations across the country. Training courses are regularly updated to
keep current with industry trends and modifications to the Snelling system.
Supplemental training is also available in the field through print, video and
audio training courses, system manuals and approved forms, which the Company has
developed and copyrighted.
Recruitment of Flexible Staffing Personnel. The Company seeks to recruit,
screen and maintain a pool of qualified flexible staffing personnel for
entry-level positions. Each franchise and branch location is provided with a
proprietary recruiting manual that outlines community centers of influence, use
of recruiting materials, advertising and activities designed to increase
applicant flow and retention. In addition to the attraction of its strong
reputation and brand name, the Company has developed a system of promotions,
employee testing and
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<PAGE> 33
evaluation in order to maintain and expand its pool of qualified personnel
needed to satisfy ongoing client demand.
Flexible staffing personnel are recruited through advertising in local
media and, to a lesser extent, national media, the Yellow Pages(R) and the
Company's Internet web site. In addition, a substantial portion of new employees
are obtained through referrals from other employees of the Company, clients and
various organizations and associations. To encourage employee referrals and
retention, the Company has instituted an incentive program. Flexible staffing
personnel who are enrolled in the Xtra Club(TM) program earn points for hours
worked and for referrals hired. These points are redeemable for various
merchandise found in the Company's Xtra Club(TM) catalog.
The Company interviews, tests, checks references and evaluates the skills
of applicants for flexible employment, utilizing systems and procedures
developed by the Company. Flexible staffing employees are employed by the
Company on an as needed basis dependent upon client demand. Flexible staffing
employees are paid for the time they actually work, but may be eligible for
holiday, vacation, bonus compensation and other benefits.
Pay/Bill Processing Services. Through its wholly owned subsidiary, Advance
Processing Systems, Inc. ("Advance"), the Company offers franchises pay/bill
processing services to support payroll and billing activities and working
capital needs related to their offering of flexible staffing services.
First-time franchisees who have purchased franchises since September 27, 1992,
are contractually obligated to use these services. Other franchisees are
encouraged to participate, but are not required to do so. At June 30, 1997, 122
franchise locations were participating in the Company's pay/bill processing
program. All of the Company's branches also utilize the pay/bill services. The
Company does not currently provide franchises with processing for career
placement services. Flexible staffing services sales of non-pay/bill franchise
locations are only reflected in system-wide sales figures. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- General."
The Company's pay/bill processing program provides franchisees with working
capital financing based on flexible staffing services billings. On a weekly
basis, Advance pays flexible staffing employees, withholds and remits payroll
taxes to the proper government agencies, bills and receives payments from
customers and processes distribution payments to franchisees after deduction of
the related royalties, advertising fees and pay/bill processing fees. If any
flexible staffing services billings remain unpaid for 60 days, the amount billed
is charged back to the franchisee.
Risk Management. The Company is responsible for all employee-related costs
for the flexible staffing employees placed by its branch locations and franchise
locations participating in the pay/bill processing program. These variable
expenses include workers' compensation, unemployment insurance, FICA and
Medicare taxes, state and local taxes and other general payroll expenses, with
workers' compensation representing the principal component. Recognizing that
workers' compensation and other insurance coverages are controllable costs, the
Company created a dedicated risk management department in 1994. The Company
provides risk management support to branch locations and franchise locations
participating in its pay/bill processing services, which is focused on safety
and loss prevention to control employee-related costs. The Company believes that
its emphasis on controlling these costs enables its branches and participating
franchises to price their services competitively.
The Company's risk management department is currently staffed by five
professionals with extensive experience in risk management. The Company's risk
management department administers a master insurance program for participating
locations. Risk management personnel work directly with branch and participating
franchise locations to reduce each location's employee-related costs. Risk
management personnel also provide employee safety and health programming and
training on loss control issues. As part of its risk management policy, the
Company limits the types of assignments that can be accepted based on a risk
analysis of the type of work to be performed. The risk management department
manages risk costs by analyzing premium and loss data from participating
locations in order to identify loss trends and determine appropriate risk
management responses. The risk management department is also responsible for
allocating premiums to participating
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locations, which is based largely on each participating location's ratio of
incurred losses to premiums contributed.
Management Information Systems. The Company is committed to fully automate
all of its franchise and branch locations with integrated, company-wide
information systems. Since 1995, Snelling has invested approximately $5.3
million, and intends to invest approximately $3.7 million of additional funds in
the implementation of advanced management information systems. The Company's
goal is to strengthen its ability to service clients by effectively filling work
assignments, accurately generating payroll and billings, monitoring flexible
staffing employee performance and providing costing or other management
reporting requested by its clients. The Company believes the new management
information systems will be fully functional in 1998.
The Company's new corporate management information system is comprised of a
front-office component and a back-office component. The front-office system uses
EmpACT(TM) software, an office automation system that handles sales and
day-to-day operations of branch and franchise locations. The PeopleSoft(R) back
office system is composed of financial and human resource/payroll applications.
As of June 30, 1997, 29 franchise and 17 branch locations had fully implemented
the EmpACT(TM) front office system, and an additional 20 franchise and six
branch locations had executed sublicense agreements and implementation was
pending. The Company currently has implemented the payroll, accounts receivable,
accounts payable, general ledger and asset management applications of
PeopleSoft(R).
The EmpACT(TM) system provides full front office functionality to
electronically manage the Company's day-to-day transactions, scheduling and
reporting requirements. The EmpACT(TM) System captures and matches, on a timely
basis, client order requirements with the experience, skills, education,
availability and desires of employees. This software is year 2000 compliant and
is scaleable from one field installation to multiple networked field locations
operating on a single database. The Company networks certain metropolitan
locations to share client and employee information providing the greatest
benefit to sales and service and takes advantage of reporting and communications
capabilities to conduct remote audits of its local operations. The Company has
had EmpACT(TM) software enhanced to provide full service functionality for the
various staffing services offered at each location. The software may be further
customized by the individual end-user as circumstances require.
The PeopleSoft(R) back office system is designed to provide the data needed
to meet the Company's external reporting requirements to, among others,
shareholders, creditors and government agencies and is year 2000 compliant. The
completed back office system will process payroll, billing, accounts receivable,
accounts payable and general ledger, along with other financial applications. It
will provide a full range of reports needed to manage franchise and branch
locations on a daily basis, including payroll cost reports, billing reports,
gross margin analyses, client/personnel profitability and receivable agings.
The Company also established an Internet web site in January 1997 listing
all franchise and branch locations and simultaneously began licensing individual
Internet web sites, hot linked to the Company's main site, to its franchises.
Each individual web site has the ability to post both jobs and active job
seekers and receive and direct job applicants and client inquiries to the
appropriate franchise or branch location. In addition, the Company has begun the
implementation of a corporate intranet web site for the paperless dissemination
of information within Snelling's corporate office and among its franchise and
branch locations.
The Company operates a disaster recovery site for its management
information systems, which is near the Snelling headquarters but is serviced by
a separate electric power utility grid. The Company has implemented a
third-party disaster recovery software to create and assist with the ongoing
maintenance of the disaster recovery plan. The plan will enable the Company to
continue to operate in the event of a natural disaster or other problem
affecting the Snelling headquarters. An Oracle(R) database at the disaster
recovery site is updated hourly from the Company's database at Snelling
headquarters. All other computer information is backed up on a daily basis, and
the ultimate goal is to provide real-time backup. The disaster recovery site has
the necessary computer hardware and software and is physically configured so
that the pay/bill processing services provided by the Company can be run at the
disaster recovery site in the event of a problem with the headquarters system.
In the event of a problem, all remote information from franchise and branch
locations can be rerouted to the disaster recovery site within 30 minutes. The
disaster recovery site has not been fully
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<PAGE> 35
implemented, but the Company anticipates final completion and testing during the
fourth quarter of 1997. Once fully implemented, Snelling believes it will have
the ability to fully recover its core financial and pay/bill processing
functions within 48 hours of a total disaster at its corporate headquarters.
COMPETITION
The U.S. staffing industry is highly competitive and highly fragmented. The
Company believes that there are more than 20,000 staffing offices competing in
the industry. Approximately 1,600 staffing companies are members of the National
Association of Temporary and Staffing Services, the staffing industry's
principal trade association, and over 50 staffing companies are publicly traded.
There are limited barriers to entry, and new competitors frequently enter the
market. Snelling believes that no one firm has more than 5% of the U.S. market
based on system-wide sales. The staffing industry has, however, been undergoing
significant consolidation.
The staffing services provided by the Company are also provided by a number
of companies with national and international operations that have substantially
greater resources than the Company. The Company and other national firms
primarily benefit from having nationally recognized brand names. The Company
believes that other competitive factors include the availability of personnel,
quality of personnel and services, proximity to the client and price.
Since many clients of both the Company's flexible staffing services and
career placement services contract for their staffing services locally,
competition varies from market to market. In most major markets, competitors
generally include many of the large publicly traded companies and, in addition,
numerous regional and local full-service and specialized flexible staffing
service agencies, some of which may operate only in a single market. In most
areas, no single company has a dominant share of the market. Many clients use
more than one staffing services company, and it is common for major corporate
clients to use several staffing services companies at the same time. However, in
recent years, there has been a significant increase in the number of large
clients consolidating their flexible staffing purchases with a single supplier
or with a small number of firms. The trend to consolidate flexible staffing
purchases has in some cases made it more difficult for the Company to gain
business from potential clients who have already contracted to fill their
staffing needs with competitors of the Company. In other cases, the Company has
been able to increase the volume of business with certain clients who choose to
purchase flexible staffing primarily from the Company.
REGULATION
Snelling has a legal compliance program to ensure its operations conform
with applicable laws and regulations. The Company also regularly reviews new and
amended laws and regulations at the federal, state, and local levels to
determine their applicability to the services then offered by the Company.
Staffing firms are generally subject to various types of government laws
and regulations, including (i) regulation of the employer/employee relationship
between a firm and its flexible staff and (ii) registration, licensing, record
keeping and reporting requirements. Staffing firms are the legal employers of
their flexible staffing employees. Therefore, staffing firms are also governed
by laws regulating the employer/employee relationship such as tax withholding or
reporting, social security or retirement, anti-discrimination and workers'
compensation.
In certain states, companies which engage in career placement are subject
to regulations. The Company analyzes the applicability of these state
regulations to its career placement activities and complies with these
requirements, if applicable.
The Company's sale of franchises and licenses is regulated by the Federal
Trade Commission and by authorities in approximately 16 states. The Company must
deliver a franchise offering circular (similar to a prospectus) to prospective
franchisees. The Company has filed either the appropriate registration or
obtained an exemption from registration in states that require franchisors to
register in order to sell franchises. The Company believes these requirements
are expensive and time-consuming and impact the Company's ability to sell
franchises, but to no greater extent than other staffing companies that engage
in franchising.
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<PAGE> 36
PROPERTIES
Snelling's executive offices are located in approximately 32,000
square-feet of leased space in an office building in Dallas, Texas. The office
lease expires in 2002. The Company also leases 2,300 square feet of space in
Richardson, Texas, for the disaster recovery site for its management information
systems. The disaster recovery site lease expires in March 2002. The Company's
branch locations are located in leased premises, and the majority are pursuant
to leases with fixed monthly rentals and three- to five-year terms.
INTELLECTUAL PROPERTY
The Company currently has 13 service marks and trademarks registered with
the United States Patent and Trademark Office, including Snelling(R), Snelling
and Snelling(R) and Snelling Temporaries(R). These marks are used by the Company
and its franchisees. Most Snelling locations operate under the name Snelling(R)
Personnel Services. The Company does not believe that the loss of any of the
trademarks or service marks, other than Snelling(R) and Snelling and Snelling(R)
would have a material adverse effect on the Company's financial condition and
results of operations.
The Company has no patents, but has copyrighted its original materials. The
Company has obtained registered copyrights for certain of its training and
operations manuals and claims statutory copyright protection for other original
materials. These original materials include the Company's proprietary Remote
Data Entry software.
The Company believes that the protection of its marks and copyrights is
important because of client recognition of the Snelling brand name and the
unique nature of the Snelling system. Franchise agreements include appropriate
provisions granting nonexclusive licenses to franchisees to use the Company's
trademarks and copyrights. Such use inures to the benefit of the Company. The
Company intends to vigorously defend its marks and copyrights.
EMPLOYEES
At June 30, 1997, Snelling had approximately 300 full-time employees. None
of the Company's employees are covered by collective bargaining agreements. The
Company believes that its relationships with its employees are good.
LEGAL AND ADMINISTRATIVE PROCEEDINGS
Snelling, in the ordinary course of its business, may be threatened with or
named as a defendant in legal or administrative proceedings. In addition, the
Company periodically is subject to government audits and inspections. The
Company is not currently a party to any litigation or administrative proceedings
that could have, individually or in the aggregate, a material adverse effect on
the Company's business, financial condition or results of operations.
The Company maintains insurance in such amount and with such coverages,
deductibles and policy limits as management believes are reasonable and prudent.
The principal risks that the Company insures against are general liability,
workers' compensation, employee theft and fidelity losses, errors and omissions
and employee practices liability. The Company believes that its insurance
coverages are adequate for the purposes of its business.
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<PAGE> 37
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert O. Snelling, Sr............... 65 Director, Chairman of the Board and
Chief Executive Officer
Timothy J. Loncharich................ 53 Director, President and Chief
Operating Officer
Robert O. Snelling, Jr............... 41 Director and Vice Chairman, Senior
Vice President and Chief Information
Officer
J. Russell Crews..................... 41 Director, Senior Vice President,
Chief Financial Officer and Treasurer
R. Allen Riggs....................... 57 Executive Vice
President -- Operations
Barbara A. McAninch.................. 50 Vice President, Legal, General
Counsel and Secretary
</TABLE>
Robert O. Snelling, Sr., was elected Chairman of the Board in 1968 and a
director in 1956. He was elected Chief Executive Officer in October 1997. Mr.
Snelling joined the Company in 1952 and served as Chief Executive Officer from
1956 to 1994 and President and Chief Operating Officer from 1956 to 1970, 1973
to 1988 and 1993 to 1994. Mr. Snelling has been a pioneer in the flexible
staffing industry since its inception. He has received many honors and awards in
recognition of his contributions to the staffing industry. President Bush
appointed him to the National Employment Commission in 1992.
Timothy J. Loncharich was elected President July 1994, a director in August
1994 and Chief Operating Officer in October 1997. Mr. Loncharich also served as
Chief Executive Officer from July 1994 through September 1997. From 1990 to
April 1994, Mr. Loncharich was President and Chief Executive Officer of
Nursefinders, Inc., a healthcare staffing company and a subsidiary of Adia SA, a
publicly traded staffing company now known as Adecco SA. From 1985 to 1990, he
served as Executive Vice President, Chief Operating Officer, Chief Financial
Officer and a director of Interim Services Inc., a publicly traded staffing
company. Mr. Loncharich has over ten years of experience in the staffing
industry and 15 years of service industry experience.
Robert O. Snelling, Jr., was elected Vice Chairman, Senior Vice President
and Chief Information Officer in December 1996 and a director in September 1993.
Mr. Snelling joined the Company in 1990 and has served in various management
positions with the Company, including Senior Vice President -- Information
Systems from August 1994 to December 1996 and Vice President, Quality Control
from June 1993 to August 1994. From March 1988 to August 1990, he was a managing
member of the executive committee of General Fasteners Company, a wholesale
distribution company. From January 1983 to February 1988, Mr. Snelling held
various management positions with and became the corporate secretary of Lufasco,
Inc., a wholesale distribution company. Mr. Snelling has more than 14 years of
service industry experience.
J. Russell Crews was elected Senior Vice President, Chief Financial Officer
and Treasurer in January 1989 and a director in June 1993. From 1981 to 1988, he
was a manager with the public accounting firm of Grant Thornton. Mr. Crews, a
certified public accountant, has more than 19 years of service industry
experience.
R. Allen Riggs was elected Executive Vice President -- Operations in August
1997. From June 1997 to August 1997, Mr. Riggs served as President, Franchise
Division, of Holigan Investments, Inc., a home builder. From 1994 to January
1997, he served as Senior Vice President, Franchising, of Pearle Vision, Inc., a
retailer of optical products and services, and, from 1988 to 1994, he was the
Senior Vice President -- U.S. Operations
36
<PAGE> 38
for Nursefinders, Inc. Prior to 1984, Mr. Riggs served in senior operations
positions with Curtis Mathes Corporation and Goodyear Tire and Rubber Company.
Barbara A. McAninch was elected Vice President, General Counsel and
Secretary in August 1997. Prior to joining the Company, Ms. McAninch was
employed by Pearle Vision, Inc., a retail and wholesale optical company. She
served as Senior Vice President, Legal and General Counsel from November 1996 to
May 1997, Director, Senior Vice President, Legal, General Counsel and Secretary
from September 1994 to November 1996, Vice President from August 1993 to
September 1994 and Managing Attorney from June 1992 to August 1993.
Robert O. Snelling, Sr., is the father of Robert O. Snelling, Jr. Mr. Crews
is married to a daughter of Anne M. Snelling, the wife of Robert Snelling, Sr.
The Company's board of directors is currently composed of four directors,
all of whom are employees of or otherwise affiliated with the Company. Each of
the current directors serves until the next annual shareholders' meeting or
until his or her successor has been duly elected and qualified. The Company
intends to expand the board of directors within 90 days following the closing of
this offering by adding three independent directors who are not employees of or
otherwise affiliated with the Company (each an "independent director").
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors has established an executive committee, which is
composed of the current directors, with Mr. Loncharich serving as Chairman. The
executive committee has the authority, between meetings of the board of
directors, to take all actions with respect to the management of the Company's
business that require action by the board of directors, except with respect to
certain specified matters that by law must be approved by the entire board of
directors.
Following the closing of this offering, the board of directors intends to
create an audit committee and a compensation committee. The audit committee will
be composed of three independent directors. The audit committee will be
responsible for (i) reviewing the scope of, and the fees for, the annual audit,
(ii) reviewing with the independent auditors the corporate accounting practices
and policies and recommending to whom reports should be submitted within the
Company, (iii) reviewing with the independent auditors their final report each
year, (iv) reviewing with internal and independent auditors overall accounting
and financial controls and (v) being available to the independent auditors
during the year for consultation purposes.
The compensation committee will be composed of three independent directors.
The Compensation Committee will determine the nature and amount of the
compensation of the executive officers of the Company and will administer the
Company's 1997 Stock Option Plan.
DIRECTOR COMPENSATION
Each independent director, who is not an employee or officer of the
Company, will receive a fee of $36,000 annually and $1,500 per board or
committee meeting. Pursuant to the Company's 1997 Non-Employee Directors Stock
Option Plan, each independent director will also receive a grant of options to
purchase 5,000 shares of Common Stock upon his or her election or appointment to
the board of directors and upon his or her reelection to the board of directors
at each annual shareholders' meeting. See "-- Stock Option Plans -- 1997
Non-Employee Directors Stock Option Plan." All directors will be reimbursed for
expenses incurred in connection with attendance at board of director and
committee meetings.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to the Company's chief
executive officer and the Company's four other most highly compensated executive
officers for services rendered during 1996 (collectively each a "named executive
officer").
37
<PAGE> 39
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($)(1) COMPENSATION($)(2) OPTIONS(#)(3) COMPENSATION($)(4)
- --------------------------- --------- ----------- ------------------ ------------- ------------------
<S> <C> <C> <C> <C> <C>
Robert O. Snelling, Sr..... $475,736 $ 53,750 -- -- $19,528(5)
Chairman of the Board and
Chief Executive
Officer
Timothy J. Loncharich...... 276,979 273,750 -- 433,205 --
President and Chief
Operating Officer
Robert O. Snelling, Jr..... 157,314 140,750 -- 541,507 --
Vice Chairman, Senior
Vice President and
Chief Information
Officer
J. Russell Crews........... 161,481 140,750 -- 541,507 --
Senior Vice President,
Chief Financial
Officer and Treasurer
</TABLE>
- ---------------
(1) Bonuses paid in 1997 for performance in 1996.
(2) Certain of the Company's executive officers receive personal benefits in
addition to salary and cash bonuses. The aggregate amount of the personal
benefits, however, does not exceed the lesser of $50,000 or 10% of the total
of the annual salary and bonus reported for the named executive officer.
(3) Class B Common Stock.
(4) No restricted stock has been awarded to the named executive officers.
(5) Life insurance premiums paid by the Company.
The following table represents the options granted to the named executive
officers during 1996 and the value of the options.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES IN OR BASE EXPIRATION ---------------------------
NAME GRANTED(#)(1) FISCAL YEAR PRICE($/SH) DATE 5%($) 10%($)
---- ------------- ------------ ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Robert O. Snelling,
Sr................... -- -- -- -- -- --
Timothy J.
Loncharich........... 433,205 16.7% $3.85 11/01/06 $1,049,492 $2,659,633
Robert O. Snelling,
Jr................... 25,981 1.0% 4.23 11/30/01 17,768 51,220
Robert O. Snelling,
Jr................... 515,526 19.8% 3.85 11/30/06 1,248,921 3,165,030
J. Russell Crews....... 541,507 20.8% 3.85 11/30/06 1,311,865 3,324,542
</TABLE>
- ---------------
(1) Class B Common Stock.
(2) Calculated based on the fair market value of the Company's common stock as
of December 2, 1996, as determined by the board of directors pursuant to,
among other things, an independent valuation and sales of the Company's
common stock. The amounts represent only certain assumed rates of
appreciation mandated by the rules of the Commission. Actual gains, if any,
on stock option exercises and sale of Common Shares cannot be predicted, and
there can be no assurance that the gains set forth in the table will be
achieved.
38
<PAGE> 40
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1996, the board of directors did not have a compensation committee or
other committee performing similar functions. Decisions concerning compensation
of executive officers were made by the board of directors, which included each
of the current directors, Robert R. Paulk (Senior Vice President -- Operations),
Richard H. Spragins (Senior Vice President -- Operations), Melinda S. Paulk
(Vice President -- National Accounts Division) and Anne M. Snelling (Vice
President). Following the election of independent directors to the board of
directors, the board of directors will create a compensation committee that will
be composed of three independent directors.
EMPLOYMENT AGREEMENTS
Chairman of the Board and Chief Executive Officer. The Company entered into
an employment agreement with Robert O. Snelling, Sr., in October 1997, pursuant
to which Mr. Snelling serves as Chief Executive Officer and, at such times as
Mr. Snelling serves on the board of directors, Chairman of the Board. The
employment agreement has a term of 15 years. The employment agreement provides
for a base salary of $475,000 per year, which will increase annually by an
amount determined by the board of directors, but in any event not less than two
times any change in the Consumer Price Index for the previous year. Mr. Snelling
is also entitled to various other benefits, including (i) one demand and two
piggyback registration rights with respect to Common Shares he holds and (ii)
sabbaticals from time to time as he and the Company deem appropriate, including
a planned one-year sabbatical at a time of his choosing.
Mr. Snelling's employment may be terminated prior to the end of the term by
the Company upon his death or disability, by mutual written consent of the
parties, by Mr. Snelling on 30-days' written notice or by the Company for good
cause (as defined in the employment agreement). If his employment is terminated
by the Company for any reason other than good cause, Mr. Snelling is entitled to
receive a severance benefit in an amount equal to two times his base salary paid
during the immediately preceding 12-month period. In addition, if Mr. Snelling's
employment is terminated for any reason or the number of hours he regularly
devotes to the business of the Company is reduced to substantially less than
full time, then he is entitled to receive, for the balance remaining of the
15-year term and for five years thereafter, annual deferred compensation in an
amount equal to 75% of his then base salary. The deferred compensation will be
payable monthly and be subject to minimum annual increases at the discretion of
the board of directors. If Mr. Snelling dies while an employee or while
receiving such deferred compensation, the Company will pay his surviving spouse
an annual death benefit equal to two-thirds of the amount of deferred
compensation Mr. Snelling would otherwise have been entitled to receive and for
the same period Mr. Snelling would have been paid deferred compensation. In
addition, if a change in control (as defined in the employment agreement)
occurs, Mr. Snelling may elect, within 12 months following the change of
control, to (i) have his compensation, including any deferred compensation,
increased by 10% or (ii) require the Company to pay him a lump sum equal to the
then present value of the economic benefits pursuant to the employment agreement
(plus, in either case, an additional gross-up amount in the event of imposition
of any federal excise or similar tax on the payment). The employment agreement
also contains a noncompetition provision, which applies during Mr. Snelling's
employment, and a noninterference provision, which applies during Mr. Snelling's
employment and for 36 months thereafter if Mr. Snelling's employment is
terminated for any reason.
President and Chief Operating Officer. The Company entered into an
employment agreement with Mr. Loncharich in July 1994. As amended, the
employment agreement provides for Mr. Loncharich to serve as President and Chief
Operating Officer of the Company. The employment agreement has an initial term
through December 31, 2001. The employment agreement provides for a base salary
to be determined by the board of directors, with a minimum of $230,000 per year,
as well as an annual performance bonus ranging from 25% to 100% of Mr.
Loncharich's annual base salary based on the percentage of achievement of the
Company's budgeted earnings before income taxes. No performance bonus is payable
unless the Company's earnings before income taxes are at least 80% of budgeted
earnings before income taxes. The employment agreement also originally provided
for a long-term incentive bonus plan. An amendment to the employment agreement
in November 1996 replaced an original long-term incentive bonus plan with a
grant of options to purchase 433,205 shares of Class B Common Stock under the
Company's 1996 Stock Option Plan.
39
<PAGE> 41
Mr. Loncharich's employment may be terminated prior to the end of the term
by the Company upon his death or disability, by Mr. Loncharich on 30-days'
written notice or by the Company for good cause (as defined in the employment
agreement) or upon 30-days' written notice. If his employment is terminated by
the Company for reasons other than good cause and upon 30-days' notice, Mr.
Loncharich is entitled to receive his base salary for an additional six months
and a pro rata portion of his performance bonus for that year. The employment
agreement also contains noncompetition and noninterference provisions, which
apply during Mr. Loncharich's employment and for 24 months and 36 months,
respectively, thereafter if Mr. Loncharich's employment is terminated for any
reason.
Senior Vice Presidents. In December 1996, the Company entered into
employment agreements with each of Robert O. Snelling, Jr., and Messrs. Crews,
Paulk and Spragins, pursuant to which each officer will serve as a senior vice
president of the Company. Each of the employment agreements has an initial term
of ten years. The employment agreements each provide for a base salary to be
determined by the board of directors, with a minimum of $175,000 per year. The
employment agreements also each provide for an annual performance bonus
generally ranging from 25% to 100% of the officer's annual base salary based on
the percentage of achievement of the Company's budgeted earnings before income
taxes. No performance bonus is payable unless the Company's earnings before
income taxes are at least 80% of budgeted earnings before income taxes. If the
Company's earnings before income taxes exceed 120% of projected earnings before
income taxes, the bonus will be greater than 100% of the officer's annual base
salary based upon a formula set forth in the employment agreements. For purposes
of this bonus calculation, the budgeted earnings before income taxes for any
year must not be less than the previous year's budgeted amount.
Each officer's employment may be terminated prior to the end of the term by
the Company upon the officer's death or disability, by the officer on 30-days'
written notice or by the Company for good cause (as defined in the employment
agreement). If the officer's employment is terminated by the Company for reasons
other than good cause, each officer is entitled to receive a severance benefit
equal to three times the officer's base salary and annual performance bonus
during the immediately preceding 12-month period. In addition, if a change in
control (as defined in the employment agreement) occurs and the officer's
employment is terminated upon the change in control or at any time during the
two-year period immediately following the change in control either by the
Company (except for death, disability, good cause or expiration of the term of
the employment agreement) or by the officer because of a significant reduction
in responsibilities, a reduction of the officer's annual base salary in effect
prior to the change in control, or a job relocation of more than 25 miles, then
the officer is entitled to receive an amount equal to three times the officer's
base salary and three times a pro rata portion of the officer's annual
performance bonus determined through the date of termination (along with an
additional gross-up amount in the event of imposition of any federal excise tax
on the payment). Each officer's employment agreement also contains a
noncompetition provision, which applies during the officer's employment, and a
noninterference provision, which applies during the officer's employment and for
36 months thereafter if the officer's employment is terminated for any reason.
Vice Presidents. In December 1996, the Company entered into an employment
agreement with Mrs. Paulk, pursuant to which Mrs. Paulk serves as a vice
president of the Company. The material terms of Mrs. Paulk's employment
agreement are the same as the terms of the employment agreements entered into
with Robert O. Snelling, Jr., and Messrs. Crews, Paulk and Spragins, except that
Mrs. Paulk's employment agreement (i) provides for a base salary of $135,000 per
year and (ii) does not provide for an annual performance bonus.
The Company entered into an employment agreement with Anne M. Snelling in
October 1997, pursuant to which Mrs. Snelling serves as a vice president of the
Company. The material terms of Mrs. Snelling's employment agreement are the same
as the terms of Mr. Snelling's employment agreement, except that Mrs. Snelling's
employment agreement (i) provides for a base salary of $25,000 per year and (ii)
does not include any grant of registration rights.
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<PAGE> 42
STOCK OPTION PLANS
1997 Stock Option Plan. Pursuant to the Company's 1997 Stock Option Plan
(the "1997 Stock Option Plan"), options may be granted to eligible employees for
the purchase of an aggregate of 1,500,000 shares of Common Stock. Any shares
that are no longer subject to purchase pursuant to an option by reason of the
expiration of the option or otherwise may be re-offered under the 1997 Stock
Option Plan. Employees eligible under the 1997 Stock Option Plan are those whose
performance and responsibilities are determined to be instrumental to the
Company's success. The 1997 Stock Option Plan is administered by the
compensation committee of the board of directors which determines, in its
discretion, who will receive stock options, the number of shares subject to each
option granted and the related purchase price, and option period. Both
nonqualified stock options and incentive stock options, as defined by the
Internal Revenue Code, may be granted under the 1997 Stock Option Plan.
The 1997 Stock Option Plan requires that the exercise price for each stock
option must be not less than the fair market value of the Common Stock at the
time the option is granted, as determined by the compensation committee, and
that the option period may not be more than ten years from the date the option
is granted. No incentive stock option, however, may be granted to an employee
who owns more than 10% of the total combined voting power of all classes of
outstanding stock of the Company on the date of grant unless the option price is
at least 110% of the fair market value of the Common Stock on the date of grant
and the option period does not exceed five years. The fair market value of
incentive stock options that may be granted to an employee in any calendar year
is not limited, but no options granted under the 1997 Stock Option Plan to an
employee may be treated as incentive stock options to the extent that the
aggregate fair market value (determined as of the date of grant of such options)
of the options that first become exercisable during a calendar year to purchase
Common Stock exceeds $100,000. An incentive stock option (or an installment
thereof) counts against the annual limitation only in the year it first becomes
exercisable.
Options may be exercised in annual installments as specified by the
compensation committee, and all installments that become exercisable are
cumulative and may be exercised at any time after they become exercisable until
the option expires. Options are not assignable except by will or the laws of
descent and distribution. Full payment for shares purchased upon exercise of an
option must be made at the time of exercise, and no shares may be issued until
full payment is made. The 1997 Stock Option Plan provides that an option
agreement may permit an optionee to tender previously owned shares of Common
Stock in partial or full payment for shares to be purchased on exercise of an
option.
Unless sooner terminated by action of the board of directors, the 1997
Stock Option Plan will terminate in 2007. The 1997 Stock Option Plan may be
amended, altered or discontinued in certain respects by the board of directors
without shareholder approval. However, the 1997 Stock Option Plan may not be
amended without the approval of the shareholders (i) to materially increase the
number of securities that may be issued thereunder or (ii) to materially modify
the requirements of eligibility for participation in the 1997 Stock Option Plan.
No options have been granted under the 1997 Stock Option Plan as of the
date of this Prospectus.
1996 Stock Option Plan. Pursuant to the Company's 1996 Stock Option Plan
(the "1996 Stock Option Plan"), options may be granted to eligible employees for
the purchase of an aggregate of 2,978,286 shares of Class B Common Stock. Any
shares that are no longer subject to purchase pursuant to an option by reason of
the expiration of the option or otherwise may be re-offered under the 1996 Stock
Option Plan. Employees eligible under the 1996 Stock Option Plan are those whose
performance and responsibilities are determined to be instrumental to the
Company's success. The 1996 Stock Option Plan is administered by the board of
directors which determines, in its discretion, who will receive stock options,
the number of shares subject to each option granted and the related purchase
price, and option period. Both nonqualified stock options and incentive stock
options may be granted under the 1996 Stock Option Plan.
The 1996 Stock Option Plan requires that the exercise price for each stock
option must be not less than the fair market value of the Class B Common Stock
at the time the option is granted, as determined by the board of directors, and
that the option period may not be more than ten years from the date the option
is
41
<PAGE> 43
granted. No incentive stock option, however, may be granted to an employee who
owns more than 10% of the total combined voting power of all classes of
outstanding stock of the Company on the date of grant unless the option price is
at least 110% of the fair market value of the Class B Common Stock on the date
of grant and the option period does not exceed five years. The fair market value
of incentive stock options that may be granted to an employee in any calendar
year is not limited, but no options granted under the 1996 Stock Option Plan to
an employee may be treated as incentive stock options to the extent that the
aggregate fair market value (determined as of the date of grant of such options)
of the options that first become exercisable during a calendar year to purchase
Class B Common Stock exceeds $100,000. An incentive stock option (or an
installment thereof) counts against the annual limitation only in the year it
first becomes exercisable.
Options may be exercised in annual installments as specified by the board
of directors, and all installments that become exercisable are cumulative and
may be exercised at any time after they become exercisable until the option
expires. Options are not assignable except by will or the laws of descent and
distribution. Full payment for shares purchased upon exercise of an option must
be made at the time of exercise, and no shares may be issued until full payment
is made. The 1996 Stock Option Plan provides that an option agreement may permit
an optionee to tender previously owned shares of Class B Common Stock in partial
or full payment for shares to be purchased on exercise of an option.
Unless sooner terminated by action of the board or directors, the 1996
Stock Option Plan will terminate in 2006. The 1996 Stock Option Plan may be
amended, altered or discontinued in certain respects by the board of directors
without stockholder approval. However, the 1996 Stock Option Plan may not be
amended without the approval of the stockholders (i) to materially increase the
number of securities that may be issued thereunder or (ii) to materially modify
the requirements of eligibility for participation in the 1996 Stock Option Plan.
During 1996, options to purchase a total of 2,599,232 shares of Class B
Common Stock at a weighted exercise price of $3.85 per share were granted under
the 1996 Stock Option Plan to certain key employees of the Company. The Company
intends to grant options to purchase an additional 364,163 shares of Class B
Common Stock to other key employees at the initial public offering price upon
completion of this offering.
1997 Non-Employee Directors Stock Option Plan. Pursuant to the Company's
1997 Non-Employee Directors Stock Option Plan (the "Directors Stock Option
Plan"), nonqualified stock options are granted to non-employee directors,
assuming there is an adequate number of shares available for grant under the
Directors Stock Option Plan at a specified grant date, under a formula whereby
(i) each non-employee director elected to the board of directors after July 1,
1997, at an annual shareholders' meeting who has not previously served as a
director of the Company will be granted an option to purchase 5,000 shares of
Common Stock of the Company, (ii) each non-employee director appointed after
such date to fill a vacancy in the board of directors who has not previously
served as a director of the Company will be granted an option to purchase 5,000
shares of Common Stock of the Company and (iii) each other non-employee director
of the Company elected at, or continuing to serve following, each annual
shareholders' meeting after such date will be granted an option to purchase
5,000 shares of Common Stock of the Company. The aggregate number of shares of
Company Stock that may be granted during the ten-year term of the Directors
Stock Option Plan is 150,000 shares. Unless sooner terminated by action of the
board of directors, the Directors Stock Option Plan will terminate in 2007, and
no options may thereafter be granted under the Directors Stock Option Plan.
The Directors Stock Option Plan requires that the exercise price of each
option must not be less than 100% of the fair market value of the Common Stock
at the time of the grant of the option. The period during which each option is
exercisable will commence six months after the date the option is granted and
will expire five years from the grant date or, if earlier, three months
following the non-employee director's death or disability or 30 days following
the date a non-employee director ceases to be a director of the Company. Options
are not assignable other than by will or by the laws of descent and
distribution.
No options have been granted under the Directors Stock Option Plan as of
the date of this Prospectus.
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<PAGE> 44
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the named
executive officers concerning exercise of stock options during 1996 and
unexercised options held as of the end of 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
AT FISCAL YEAR-END(#)(1) FISCAL YEAR-END($)(2)
------------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert O. Snelling, Sr.................... -- -- -- --
Timothy J. Loncharich..................... 173,282 259,923 -- --
Robert O. Snelling, Jr.................... 541,507 -- -- --
J. Russell Crews.......................... 541,507 -- -- --
</TABLE>
- ---------------
(1) Class B Common Stock.
(2) Calculated based on the fair market value of the Company's common stock as
of December 31, 1996, as determined by the board of directors pursuant to,
among other things, an independent valuation and sales of the Company's
common stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Although the Company has no present intention to do so, it may in the
future enter into other transactions and agreements incident to its business
with its directors, officers, principal shareholders and other affiliates.
Company intends for all such transactions and agreements to be on terms no less
favorable to the Company than those obtainable from unaffiliated third-parties
on an arms-length basis. In addition, all such transactions will be approved by
a majority of the Company's disinterested directors.
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<PAGE> 45
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of Common Shares of the Company, as of September 30, 1997
(the "Ownership Date"), before and after giving effect to the sale of shares of
Common Stock in this offering, by (i) each director, (ii) each named executive
officer, (iii) all directors and executive officers as a group, (iv) each person
known by the Company to own beneficially more than 5% of the outstanding shares
of any class of Common Shares and (v) the Selling Shareholder.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY OWNED PERCENTAGE PRIOR PERCENTAGE AFTER
PRIOR TO OFFERING(1) TO OFFERING OFFERING
--------------------- ----------------- NUMBER -----------------
SHARES OF OF SHARES
SHARES OF CLASS B TOTAL TOTAL BEING TOTAL TOTAL
COMMON COMMON COMMON VOTING SOLD IN COMMON VOTING
NAME STOCK STOCK SHARES POWER OFFERING SHARES POWER
---- --------- --------- ------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert O. Snelling, Sr.(2)......... -- 3,825,126 52.5% 52.5% 416,667 32.2% 46.2%
Timothy J. Loncharich(3)........... -- 259,923 4.8% 4.8% -- 2.6% 4.7%
Robert O. Snelling, Jr.(4)......... -- 3,730,955 65.8% 65.8% -- 36.4% 64.9%
J. Russell Crews(5)................ -- 3,072,126 54.2% 54.2% -- 30.0% 53.4%
Krista C. Coppock(6)............... -- 2,488,197 48.5% 48.5% -- 25.6% 47.8%
Lee Alan Coppock, Jr.(7)........... -- 2,450,291 47.8% 47.8% -- 25.2% 47.0%
Leigh S. Crews(8).................. -- 2,485,489 48.5% 48.5% -- 25.6% 47.7%
Charles B. Fulton, Jr.(9).......... -- 487,898 9.5% 9.5% -- 5.0% 9.4%
Melinda S. Paulk(10)............... -- 2,485,489 48.5% 48.5% -- 25.6% 47.7%
Robert R. Paulk(11)................ -- 3,072,120 54.2% 54.2% -- 30.0% 53.4%
Carol A. Snelling(12).............. -- 2,485,489 48.5% 48.5% -- 25.6% 47.7%
Richard H. Spragins(13)............ -- 3,072,120 54.2% 54.2% -- 30.0% 53.4%
Sherri S. Spragins(14)............. -- 2,485,489 48.5% 48.5% -- 25.6% 47.7%
Arimathea Associates, Ltd.(15)..... -- 2,450,291 47.8% 47.8% -- 25.2% 47.0%
All directors and executive
officers as a group (6
persons)(16)..................... -- 7,309,695 96.8% 96.8% 416,667 60.2% 90.3%
</TABLE>
- ---------------
(1) A person is deemed to be the beneficial owner of a security if the person,
directly or indirectly, has or shares the power to vote or direct the
voting of the security or the power to dispose or direct the disposition of
the security. A person is also deemed to be a beneficial owner of any
securities if that person has the right to acquire beneficial ownership
within 60 days of the Ownership Date. Accordingly, more than one person may
be deemed to be a beneficial owner of the same securities. Unless otherwise
indicated by footnote, the named individuals have sole voting and
investment power with respect to the Common Shares beneficially owned.
Unless otherwise indicated, the address of any listed principal shareholder
is 12801 North Central Expressway, Suite 700, Dallas, Texas 75243.
(2) Includes (i) 1,035,822 shares of Class B Common Stock over which Mr.
Snelling, Sr., has sole voting and investment power; (ii) 487,898 shares
Class B Common Stock over which Mr. Snelling, Sr., has shared voting and
investment power as a co-trustee along with Charles B. Fulton, Jr.; (iii)
an aggregate of 135,378 shares of Class B Common Stock held by Messrs.
Crews, Paulk, and Spragins over which Mr. Snelling, Sr., has sole voting
power pursuant to an irrevocable, ten-year proxy (the "Snelling Proxy")
granted by such owners on January 15, 1997; and (iv) an aggregate of
2,166,028 shares of Class B Common Stock issuable upon the exercise of
options granted to Robert O. Snelling, Jr., and Messrs. Crews, Paulk and
Spragins under the 1996 Stock Option Plan over which Mr. Snelling, Sr.,
will have sole voting power upon issuance pursuant to the Snelling Proxy.
Mr. Snelling, Sr., disclaims beneficial ownership of the shares of Class B
Common Stock described in clauses (ii), (iii) and (iv) above.
Contemporaneously with the closing of this offering, Mr. Snelling, Sr.,
will convert 416,667 shares of Class B Common Stock into the same number of
shares of Common Stock, which will be sold in the offering. See
"Description of Capital Stock -- Common Stock" regarding the conversion
rights and restrictions on transfer of the Class B Common Stock.
44
<PAGE> 46
(3) Includes 259,923 shares of Class B Common Stock issuable upon the exercise
of options granted under the 1996 Stock Option Plan that are currently
exercisable.
(4) Includes (i) 739,157 shares of Class B Common Stock, of which 35,198 shares
are held by Mr. Snelling, Jr., with his wife, Carol A. Snelling, as tenants
in common; (ii) 2,450,291 shares of Class B Common Stock held by Arimathea
Associates, Ltd., a Texas limited partnership ("Arimathea"), over which Mr.
Snelling, Jr., has shared voting and investment power as a 10.8% limited
partner and a 10% shareholder and director of Arimathea's corporate general
partner, Nehemiah, Inc., a Texas corporation ("Nehemiah"); and (iii)
541,507 shares of Class B Common Stock issuable upon the exercise of
options granted under the 1996 Stock Option Plan that are currently
exercisable, but over which Mr. Snelling, Sr., will have sole voting power
upon issuance pursuant to the Snelling Proxy. Mr. Snelling, Jr., disclaims
beneficial ownership of the shares of Class B Common Stock held by
Arimathea, except to the extent such shares are attributable to his limited
partner interest and indirect general partner interest.
(5) Includes (i) 45,130 shares of Class B Common Stock, the voting power of all
of which has been granted to Mr. Snelling, Sr., pursuant to the Snelling
Proxy; (ii) 35,198 shares of Class B Common Stock held by Mr. Crews and his
wife, Leigh S. Crews, as tenants in common; (iii) 2,450,291 shares of Class
B Common Stock held by Arimathea over which Mr. Crews has shared voting and
investment power as a 7.4% limited partner and a 10% shareholder and
director of Nehemiah; and (iv) 541,507 shares of Class B Common Stock
issuable upon the exercise of options granted under the 1996 Stock Option
Plan that are currently exercisable, but over which Mr. Snelling, Sr., will
have sole voting power upon issuance pursuant to the Snelling Proxy. Mr.
Crews disclaims beneficial ownership of the shares of Class B Common Stock
held by Arimathea, except to the extent such shares are attributable to his
limited partner interest and indirect general partner interest.
(6) Includes (i) 37,906 shares of Class B Common Stock; and (ii) 2,450,291
shares of Class B Common Stock held by Arimathea over which Mrs. Coppock
has shared voting and investment power as a 10.8% limited partner and a 10%
shareholder of Nehemiah. Mrs. Coppock disclaims beneficial ownership of the
shares of Class B Common Stock held by Arimathea, except to the extent such
shares are attributable to her limited partner interest and indirect
general partner interest. Mrs. Coppock's father is Mr. Snelling, Sr. Mrs.
Coppock's address is 3327 S. Manor Way, Osseo, Michigan 49266.
(7) Includes 2,450,291 shares of Class B Common Stock held by Arimathea over
which Mr. Coppock has shared voting and investment power as a 7.4% limited
partner and a 10% shareholder of Nehemiah. Mr. Coppock disclaims beneficial
ownership of the shares of Class B Common Stock held by Arimathea, except
to the extent such shares are attributable to his limited partner interest
and indirect general partner interest. Mr. Coppock's address is 3327 S.
Manor Way, Osseo, Michigan 49266.
(8) Includes (i) 35,198 shares of Class B Common Stock held by Mr. and Mrs.
Crews as tenants in common; and (ii) 2,450,291 shares of Class B Common
Stock held by Arimathea over which Mrs. Crews has shared voting and
investment power as a 10.8% limited partner and a 10% shareholder of
Nehemiah. Mrs. Crews disclaims beneficial ownership of the shares of Class
B Common Stock held by Arimathea, except to the extent such shares are
attributable to her limited partner interest and indirect general partner
interest. Mrs. Crews' mother is Mrs. Snelling, Sr.
(9) Includes 487,898 shares of Class B Common Stock held by the Joan E.
Snelling Trust over which Mr. Fulton has shared voting and investment power
as a co-trustee along with Mr. Snelling, Sr. Mr. Fulton disclaims
beneficial ownership of such shares. Mr. Fulton's address is 1580 Murdock
Road, Marietta, Georgia 30060.
(10) Includes (i) 35,198 shares of Class B Common Stock held by Mrs. Paulk and
her husband, Robert R. Paulk, as tenants in common; and (ii) 2,450,291
shares of Class B Common Stock held by Arimathea over which Mrs. Paulk has
shared voting and investment power as a 10.8% limited partner and a 10%
shareholder and director of Nehemiah. Mrs. Paulk disclaims beneficial
ownership of the shares of Class B Common Stock held by Arimathea, except
to the extent such shares are attributable to her limited partner interest
and indirect general partner interest. Mrs. Paulk's mother is Mrs.
Snelling, Sr.
45
<PAGE> 47
(11) Includes (i) 45,124 shares of Class B Common Stock, the voting power of all
of which has been granted to Mr. Snelling, Sr., pursuant to the Snelling
Proxy; (ii) 35,198 shares of Class B Common Stock held by Mr. and Mrs.
Paulk as tenants in common; (iii) 2,450,291 shares of Class B Common Stock
held by Arimathea over which Mr. Paulk has shared voting and investment
power as a 7.4% limited partner and a 10% shareholder of Nehemiah; and (iv)
541,507 shares of Class B Common Stock issuable upon the exercise of
options granted under the 1996 Stock Option Plan that are currently
exercisable, but over which Mr. Snelling, Sr., will have sole voting power
upon issuance pursuant to the Snelling Proxy. Mr. Paulk disclaims
beneficial ownership of the shares of Class B Common Stock held by
Arimathea, except to the extent such shares are attributable to his limited
partner interest and indirect general partner interest.
(12) Includes (i) 35,198 shares of Class B Common Stock that are held by Mrs.
Snelling and her husband, Robert O. Snelling, Jr., as tenants in common;
and (ii) 2,450,291 shares of Class B Common Stock held by Arimathea over
which Mrs. Snelling has shared investment power as a 7.4% limited partner
and a 10% shareholder of Nehemiah. Mrs. Snelling disclaims beneficial
ownership of the shares of Class B Common Stock held by Arimathea, except
to the extent such shares are attributable to her limited partner interest
and indirect general partner interest.
(13) Includes (i) 45,124 shares of Class B Common Stock, the voting power of all
of which has been granted to Mr. Snelling, Sr., pursuant to the Snelling
Proxy; (ii) 35,198 shares of Class B Common Stock held by Mr. Spragins and
his wife, Sherri S. Spragins, as tenants in common; (iii) 2,450,291 shares
of Class B Common Stock held by Arimathea over which Mr. Spragins has
shared investment power as a 10.8% limited partner and a 10% shareholder
and director of Nehemiah; and (iv) 541,507 shares of Class B Common Stock
issuable upon the exercise of options granted under the 1996 Stock Option
Plan that are currently exercisable, but over which Mr. Snelling, Sr., will
have sole voting power upon issuance pursuant to the Snelling Proxy. Mr.
Spragins disclaims beneficial ownership of the shares of Class B Common
Stock held by Arimathea, except to the extent such shares are attributable
to his limited partner interest and indirect general partner interest. Mr.
Spragins' mother is Mrs. Snelling, Sr.
(14) Includes (i) 35,198 shares of Class B Common Stock held by Mr. and Mrs.
Spragins as tenants in common; and (ii) 2,450,291 shares of Class B Common
Stock held by Arimathea over which Mrs. Spragins has shared voting and
investment power as a 7.4% limited partner and a 10% shareholder of
Nehemiah. Mrs. Spragins disclaims beneficial ownership of the shares of
Class B Common Stock held by Arimathea, except to the extent such shares
are attributable to her limited partner interest and indirect general
partner interest.
(15) Includes 2,450,291 shares of Class B Common Stock over which Nehemiah, as
Arimathea's corporate general partner, has voting and investment power.
(16) Includes options to purchase 2,425,951 shares of Class B Common Stock
issuable upon the exercise of options granted under the 1996 Stock Option
Plan that are currently exercisable. Mr. Snelling, Sr., will have sole
voting power over an aggregate of 2,166,027 of such shares upon issuance
pursuant to the Snelling Proxy.
46
<PAGE> 48
DESCRIPTION OF CAPITAL STOCK
Prior to the effectiveness of the registration statement of which this
Prospectus forms a part, the Company will (i) file its Second Amended and
Restated Articles of Incorporation (the "Charter") with the Commonwealth of
Pennsylvania, which will, among other things, reclassify the 946,778 outstanding
shares of its common stock, par value $0.05 per share ("Old Common Stock") into
5,126,866 shares of Class B Common Stock, and (ii) adopt amended and restated
Bylaws (the "Bylaws"). Both the Charter and the Bylaws will become effective
upon the effective date of this Prospectus. The following summary of certain
provisions of the Company's capital stock gives effect to the Charter, including
the reclassification, and the Bylaws. The following summary does not purport to
be complete and is subject to, and qualified in its entirety by, the Charter and
the Bylaws, the forms of which are included as exhibits to the registration
statement of which this Prospectus forms a part, and by provisions of applicable
law.
The Company is authorized to issue up to 100,000,000 shares of Common
Stock, par value $0.01 per share, up to 15,000,000 shares of Class B Common
Stock, par value $0.01 per share, and up to 10,000,000 shares of Preferred
Stock, par value $0.01 per share. Prior to this offering, the Company had issued
and outstanding 946,778 shares of Old Common Stock (5,126,866 shares of Class B
Common Stock after giving effect to the reclassification), which were held by 39
holders of record, and no Common Shares or Preferred Stock were outstanding.
Upon consummation of this offering, 5,000,000 shares of Common Stock will be
outstanding.
PREFERRED STOCK
The board of directors of the Company is authorized (without any further
action by the shareholders) to issue Preferred Stock in one or more series and
to fix voting rights, liquidation preferences, dividend rates, conversion
rights, redemption rights and terms, including sinking fund provisions, and
certain other rights and preferences. The board of directors may issue Preferred
Stock for the consideration and on the terms it deems desirable. Satisfaction of
any dividend preferences of outstanding Preferred Stock would reduce the amount
of funds available for the payment of dividends on Common Shares. Also, holders
of Preferred Stock would normally be entitled to receive a preference payment in
the event of any liquidation, dissolution or winding-up of the Company before
any payment is made to the holders of Common Shares. In addition, under certain
circumstances, the issuance of Preferred Stock may render more difficult or tend
to discourage a merger, tender offer or proxy contest, the assumption of control
by a holder of a large block of the Company's securities or the removal of
incumbent management. The board of directors of the Company, without shareholder
approval, may issue Preferred Stock with voting and conversion rights which
could adversely affect the holders of Common Shares. The Company has no present
intention to issue any shares of Preferred Stock.
COMMON SHARES
Voting Rights. Each share of Common Stock is entitled to one vote and each
share of Class B Common Stock is entitled to ten votes on all matters submitted
to a vote of the shareholders. Except as otherwise provided by law, in any
resolution or resolutions of the board of directors of the Company providing for
the issuance of Preferred Stock, or on a vote to alter or change the rights,
privileges, restrictions or powers of the holders of the Common Shares, the
Common Stock and the Class B Common Stock vote together as a single class on all
matters presented for a vote of the shareholders. Any change in the rights,
privileges, restrictions or powers of the holders of the Common Shares requires
a vote of not less than 80% of all votes entitled to be voted by the holders of
each class to be adversely affected, voting as a separate class. The Company's
Common Shares do not have cumulative voting rights.
Liquidation Rights and Pre-emptive Rights. The Common Shares share equally
in any dividends when, as and if declared. The Common Shares do not have
pre-emptive rights.
Conversion Rights. The Common Stock has no conversion rights. Each share of
Class B Common Stock will be convertible at any time, at the option of and
without cost to the shareholder, into one fully paid and nonassessable share of
Common Stock upon surrender to the Company's transfer agent of the certificate
or certificates evidencing the Class B Common Stock to be converted, together
with a written notice of the
47
<PAGE> 49
election of such shareholder to convert such shares into Common Stock. Each
conversion of shares of Class B Common Stock shall be deemed to have been
effected on the date on which the certificate or certificates representing such
shares shall have been surrendered and such notice and any required instruments
of transfer shall have been received. Upon any conversion of shares of Class B
Common Stock into shares of Common Stock, no adjustment with respect to
dividends shall be made. Shares of Class B Common Stock converted into Common
Stock shall be retired and shall resume the status of authorized but unissued
shares of Class B Common Stock.
Restrictions on Transfer of Class B Common Stock. Shares of Class B Common
Stock are freely transferable among Permitted Transferees (as hereinafter
defined), but any other transfer of Class B Common Stock will result in its
automatic conversion into Common Stock. In the case of a person or entity
holding shares of Class B Common Stock (a "Class B Holder") who is a natural
person holding record and beneficial ownership of the shares of Class B Common
Stock to be transferred, a Permitted Transferee consists of the following: (i) a
Class B Holder; (ii) the Class B Holder's spouse (provided, however, that upon
divorce any Class B Common Stock held by the spouse shall automatically be
converted into Common Stock); (iii) any family member of the Class B Holder,
which includes the Class B Holder's spouse, any lineal descendant of a parent of
the Class B Holder, any spouse of such lineal descendant and a lineal descendant
of a parent of the spouse of the Class B Holder, including in each case any
adopted children; (iv) the trustee of a trust for the sole benefit of the Class
B Holder or any of the Class B Holder's family members; (v) any organization
established by the Class B Holder or any of the Class B Holder's family members,
contributions to which are deductible for federal income, estate or gift tax
purposes; (vi) the estate of the Class B Holder; and (vii) a corporation wholly
owned by, or a partnership in which all of the beneficial ownership is held by,
one or more of the Class B Holder and any of the Class B Holder's family members
(provided, however, that if there is any change in the shareholders of the
corporation or the partners of the partnership that would cause the corporation
or partnership no longer to be a Permitted Transferee, any Class B Common Stock
held by the corporation or partnership shall automatically be converted into
Common Stock).
In the case of a Class B Holder that is a partnership or corporation, a
Permitted Transferee consists of (i) the partnership's partners or the
corporation's shareholders, as the case may be, (ii) any transferor to the
partnership or corporation of shares of Class B Common Stock after the record
date of the initial distribution of Class B Common Stock and (iii) any Permitted
Transferee of any such person, partner or shareholder referred to in clauses (i)
and (ii). In the case of a Class B Holder that is an irrevocable trust on the
record date of the distribution of Class B Common Stock, a Permitted Transferee
consists of (i) any person to whom or for whose benefit principal may be
distributed either during or at the end of the term of such trust whether by
power of appointment or otherwise and (ii) any Permitted Transferee of any such
person determined pursuant to the first definition above given. In the case of a
Class B Holder that is any trust other than an irrevocable trust on the date of
the distribution of Class B Common Stock, a Permitted Transferee consists of (i)
any person transferring Class B Common Stock and (ii) any Permitted Transferee
of such person. In the case of a Class B Holder that is the estate of a deceased
Class B Holder, or that is the estate of a bankrupt or insolvent Class B Holder,
and provided such deceased, bankrupt or insolvent Class B Holder held record and
beneficial ownership of the shares of Class B Common Stock in question, a
Permitted Transferee means a Permitted Transferee of such deceased, bankrupt or
insolvent Class B Holder.
The restriction on transfers of shares of Class B Common Stock to other
than a Permitted Transferee may preclude or delay a change in control of the
Company.
CERTAIN PROVISIONS OF THE CHARTER AND BYLAWS
Antitakeover Provisions. The Charter and Bylaws contain certain provisions,
as described below, that in addition to the voting power of the Class B Common
Stock and the authorization of the Preferred Stock may reduce the likelihood of
a change in management or voting control of the Company without the consent of
the Company's board of directors. These provisions could have the effect of
delaying, deterring or preventing tender offers or takeover attempts that some
or a majority of the Company's shareholders might consider to be in the
shareholders' best interest, including offers or attempts that might result in a
premium over the market price for the Common Stock.
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<PAGE> 50
Advance Notice Requirements for Shareholder Proposals and Director
Nominations. The Company's Bylaws establish advance notice procedures with
regard to shareholder proposals and the nomination, other than by or at the
direction of the board of directors or a committee thereof, of candidates for
election as directors. These procedures provide that the notice of shareholder
proposals and shareholder nominations for the election of directors at an annual
meeting must be in writing and delivered to or mailed and received at the
principal executive offices of the Company not later than the date that
corresponds to 120 days prior to the date the Company's proxy statement was
released to shareholders in connection with the previous year's annual meeting
of shareholders; provided, however, that in the event that the date of the
annual meeting is changed by more than 30 days from such anniversary date,
notice by the shareholder to be timely must be so received not later than the
close of business on the tenth day following the earlier of the day on which
notice of the date of the meeting was mailed or public disclosure of the meeting
date was made. Shareholder proposals and nominations for the election of
directors at a special meeting must be in writing and received by the Secretary
of the Company no later than the close of business on the tenth day following
the day on which notice of the meeting was mailed or public disclosure of the
date of the meeting was made. The notice of director nominations and the notice
of shareholder proposals must set forth certain information as detailed in the
Company's Bylaws.
Certain Effects of Authorized But Unissued Stock. Unissued and unreserved
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital and for facilitating corporate
acquisitions. Except pursuant to certain employee benefit plans described in
this Prospectus, the Company does not currently have any plans to issue
additional shares of Common Stock, Class B Common Stock or Preferred Stock. One
of the effects of unissued and unreserved shares of capital stock may be to
enable the board of directors to render more difficult or discourage an attempt
to obtain control of the Company by means of a merger, tender offer, proxy
contest or otherwise, and thereby to protect the continuity of the Company's
management. If, in the due exercise of its fiduciary obligations, for example,
the board of directors determines that a takeover proposal was not in the
Company's best interests, such shares could be issued by the board of directors
without shareholder approval in one or more private transactions or other
transactions that might prevent or render more difficult or costly the
completion of the takeover transaction by diluting the voting or other rights of
the proposed acquiror or insurgent shareholder group, by creating a substantial
voting block in institutional or other hands that might undertake to support the
position of the incumbent board of directors, by effecting an acquisition that
might complicate or preclude the takeover or otherwise.
Removal of Directors. The Charter provides that directors may only be
removed from the board of directors for cause and by the affirmative vote of the
holders of 80% or more of the voting interest of the shareholders of record of
the Company entitled to vote at an annual or special meeting called for that
purpose.
Anti-Greenmail. The Charter contains a so-called "anti-greenmail"
provision, which is intended to discourage speculators who accumulate beneficial
ownership of a significant block of voting shares of the Company and then, under
the threat of making a tender offer or proxy contest or instigating some other
corporate disruption, succeed in extracting from the Company a premium price to
repurchase the shares acquired by the speculator. This tactic has become known
as "greenmail." The anti-greenmail provision entitles the Company to recover any
profit (as defined in the Charter) by a controlling person or group from the
disposition of any shares, or any securities exercisable for or convertible into
shares, of the Company, to any person, including the Company or another member
of the controlling person or group, whether or not the profit is actually
realized by the controlling person or group. This recovery right applies if the
shares or other securities were acquired within 24 months before and 18 months
after the person or group attains the status of a controlling person or group
and the disposition is within 18 months after the person or group attains such
status. The term "controlling person" or group" is defined as follows: (i) a
person or group who has acquired, offered to acquire or, directly or indirectly,
publicly disclosed the intention of acquiring voting power over voting shares of
the Company that would entitle the holder thereof to cast at least 10% of the
votes that all shareholders would be entitled to cast in an election of
directors of the Company; or (ii) a person or group who has otherwise, directly
or indirectly, publicly disclosed or caused to be disclosed that it may seek to
acquire control of the Company through any means. A person or group shall not be
deemed a controlling person or
49
<PAGE> 51
group (absent significant other activities indicating that the person or group
should be deemed a controlling person or group) if the person or group is one
who or which: (A)(i) did not acquire the voting shares for the purpose, directly
or indirectly, of changing or influencing control of the Company; (ii) if
control were acquired, would not be a person or group or a participant in a
group that has control over the Company and will not receive any
disproportionate consideration from such a person or group; and (iii) if a proxy
or consent is given, executes a revocable proxy or consent given without
consideration in response to a proxy or consent solicitation made in accordance
with the rules and regulations under the Exchange Act; or (B)(i) holds voting
power in good faith, and not for the purpose of circumventing the Company, as an
agent or nominee; or (ii) holds voting power in connection with the solicitation
of proxies or consents by or on behalf of the Company. This anti-greenmail
provision does not apply to certain transactions, including a transfer of equity
securities of the Company consummated before July 31, 1997, and a transfer of
equity securities by or to a person or group that as of July 31, 1997,
beneficially owned shares entitling the person or group to cast at least 10% of
the Company's voting shares.
The Charter provides that the affirmative vote of the holders of 80% or
more of the outstanding shares entitled to vote, voting together as a single
class, is required to amend or repeal or adopt any provision inconsistent with
the Company's anti-greenmail provisions.
Limitations on Liability of Directors. The Charter limits the liability of
directors to the extent allowed by the Pennsylvania Business Corporation Law.
Specifically, directors will not be held personally liable to the Company or its
shareholders for monetary damages for any action taken, or any failure to take
any action, in their capacity as a director, unless (i) the director has
breached or failed to perform the duties of the director's office under the
Charter, the Bylaws or applicable provisions of law and (ii) the breach or
failure to perform constitutes self-dealing, willful misconduct or recklessness.
The limitations on liability do not apply to the responsibility or liability of
a director pursuant to any criminal statute or for the payment of taxes pursuant
to federal, state or local law.
The principal effect of the limitation of liability provision is that a
shareholder is unable to prosecute an action for monetary damages against a
director of the Company unless the shareholder can demonstrate one of the
specified bases for liability. This provision does not eliminate the directors'
duty of care, but it may discourage or deter shareholders or management from
bringing a lawsuit against directors for a breach of their fiduciary duties,
even though such an action, if successful, might otherwise benefit the Company
and its shareholders. This provision does not eliminate or limit director
liability arising in connection with causes of action brought under the federal
securities laws. In addition, this provision should not affect the availability
of equitable remedies such as injunction or rescission based upon a director's
breach of the duty of care.
Indemnification. The Bylaws provide that the Company is generally required
to indemnify its directors and officers for all judgments, fines, settlements,
legal fees and other expenses incurred in connection with pending or threatened
legal proceedings because of the director's or officer's position with the
Company or another entity that the director or officer serves at the Company's
request, subject to certain conditions, and to advance funds to its directors
and officers to enable them to defend against such proceedings upon receipt of
any undertaking by or on behalf of the director or officer to repay the amount
if it is ultimately determined that he is not entitled to be indemnified by the
Company as authorized by the Pennsylvania Business Corporation Law or otherwise.
Conditions that bar indemnification against liabilities arising from conduct
include (i) where the conduct of the indemnified director or officer has been
determined to constitute willful misconduct or recklessness under the
Pennsylvania Business Corporation Law or any superseding provision of law and
(ii) self-dealing, which means the receipt of personal benefit from the
corporation to which the authorized director or officer is not legally entitled.
To receive indemnification, the director or officer must have been successful in
the legal proceeding or acted in good faith and in what was reasonably believed
to be a lawful manner and in the Company's best interest.
TRANSFER AGENT
The transfer agent and registrar for the Company's Common Stock is Chase
Mellon Shareholder Services LLC.
50
<PAGE> 52
LISTING
The Company has applied for quotation of the Common Stock on the Nasdaq
National Market under the symbol "SNEL."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 5,000,000 shares of
Common Stock and 4,710,199 shares of Class B Common Stock outstanding. There
will also be outstanding employee stock options to purchase an aggregate of
2,963,395 shares of Class B Common Stock. All of the shares of Common Stock,
which are being sold in this offering, will be freely transferable without
restriction or further registration under the Securities Act, except that shares
purchased by "affiliates" of the Company may generally be sold only in
compliance with applicable provisions of Rule 144 under the Securities Act. The
shares of Class B Common Stock are, and any shares issued upon the exercise of
stock options will be, "restricted securities" within the meaning of Rule 144
and may not be sold without registration under the Securities Act or an
applicable exemption under the Securities Act, including an exemption pursuant
to Rule 144. Except for private sales involving a limited number of permitted
transferees, any sale of shares of Class B Common Stock will result in the
simultaneous conversion of the shares to shares of Common Stock. See
"Description of Capital Stock -- Common Shares."
Rule 144 as currently in effect provides that an affiliate of the Company
or a person (or persons whose shares are aggregated) who has beneficially owned
restricted securities for at least one year is entitled to sell, commencing 90
days after the date of this Prospectus, within any three-month period, a number
of shares that does not exceed the greater of 1% of the then outstanding shares
of the Common Stock (97,102 shares immediately after this offering) and the
average weekly reported trading volume in the Common Stock during the four
calendar weeks preceding the sale. Sales under Rule 144 also are subject to
certain notice and manner-of-sale requirements and the availability of current
public information about the Company. A person (or persons whose shares are
aggregated) who is not an affiliate of the Company (in general, a person who is
not a director, officer or principal shareholder of the Company) during the
three months prior to resale and who has beneficially owned the restricted
securities for at least two years is entitled to sell the restricted securities
under Rule 144 without regard to the requirements discussed above.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 under the Securities Act may be
relied upon with respect to the resale of shares of Class B Common Stock
originally purchased from the Company by its employees, directors or officers
prior to the date the Company becomes subject to the reporting requirements of
the Exchange Act pursuant to written compensatory benefit plans or written
contracts relating to the compensation of such persons. Shares of Class B Common
Stock issued in reliance on Rule 701 are restricted securities and, commencing
90 days after the date of this Prospectus, may be sold by persons other than
affiliates under Rule 144, subject to the provisions regarding manner of sale
under Rule 144, and by affiliates under Rule 144 without compliance with its
holding period requirements.
The Company, its officers and directors and certain shareholders, who will
collectively own 4,656,605 shares of Class B Common Stock immediately following
this offering, have agreed that for a period of 180 days after the date of this
Prospectus they will not offer, sell, agree to sell, grant any option to
purchase or make any other disposition (excluding certain pledges) of any Common
Shares or any securities convertible into or exchangeable for Common Shares
(except for options granted pursuant to the Company's stock option plans
disclosed in this Prospectus) without the prior written consent of Smith Barney.
There has been no active public market for the Company's common stock since
1990, and no prediction can be made as to the effect, if any, that sales of
shares of Common Stock or the availability of the shares for future sale will
have on the market price of the Common Stock prevailing from time to time. Sales
of substantial amounts of Common Stock in the public market following this
offering could adversely affect the market price of the Common Stock.
51
<PAGE> 53
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting
Agreement, each of the Underwriters named below has severally agreed to
purchase, and the Company has agreed to sell to the Underwriters, the respective
number of shares of Common Stock set forth opposite the name of each
Underwriter:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Smith Barney Inc............................................
Rauscher Pierce Refsnes, Inc................................
Total............................................. 5,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to accept delivery of the shares of Common Stock offered hereby are
subject to approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all shares
of Common Stock offered hereby (other than shares covered by the over-allotment
option described below) if any shares are purchased.
The Underwriters, for whom Smith Barney and Rauscher Pierce Refsnes, Inc.,
are acting as Representatives, propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page of this Prospectus and part of the shares to certain dealers at a price
that represents a concession not in excess of $ per share under the public
offering price. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After the
initial public offering, the offering price and other selling terms may be
changed by the Representatives. The Representatives have advised the Company
that the Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of 750,000
additional shares of Common Stock at the public offering price set forth on the
cover page of this Prospectus minus the underwriting discounts and commissions.
The Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, in connection with the sale of the shares offered
hereby. To the extent such option is exercised, each Underwriter will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares set forth opposite
such Underwriter's name in the preceding table bears to the total number of
shares in such table.
The Company, its officers and directors and certain shareholders, who will
collectively own 4,656,605 shares of Class B Common Stock immediately following
this offering, have agreed that for a period of 180 days after the date of this
Prospectus they will not offer, sell, agree to sell, grant any option to
purchase or make any other disposition (excluding certain pledges) of any Common
Shares or any securities convertible into or exchangeable for Common Shares
(except for options granted pursuant to the Company's stock option plans
disclosed in this Prospectus) without the prior written consent of Smith Barney.
The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
The Underwriters may engage in over-allotment, stabilizing transactions,
covering transactions and penalty bids in accordance with Regulation M under the
Exchange Act. Over-allotment involves syndicate sales in excess of the offering
size, which creates a syndicate short position. Stabilizing transactions permit
bids for and purchases of the Common Stock so long as the stabilizing bids do
not exceed a specified maximum. Syndicate covering transactions involve
purchases of the Common Stock in the open market in
52
<PAGE> 54
order to cover syndicate short positions. Penalty bids permit the Underwriters
to reclaim a selling concession from a syndicate member when the shares of
Common Stock originally sold by such syndicate member are purchased in a
stabilizing transaction or syndicate covering transaction to cover syndicate
short positions. Such stabilizing transactions, syndicate covering transactions
and penalty bids may cause the price of the Common Stock to be higher than it
would otherwise be in the absence of such transactions. These transactions may
be effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
There has not been any public market for the Company's common stock since
1990. Consequently, the initial public offering price for the shares of Common
Stock included in this offering was determined by negotiations between the
Company and the Representatives. Among the factors considered in determining the
price were the history of and prospects for the Company's business and the
industry in which it competes, an assessment of the Company's management and the
present state of the Company's development, the past and present revenues and
earnings of the Company, the prospects for growth of the Company's revenues and
earnings, the current state of the economy in the United States, the current
level of economic activity in the industry in which the Company competes and in
related or comparable industries and current prevailing conditions in the
securities markets, including current market valuations of publicly traded
companies that are comparable to the Company.
The Company intends to apply for quotation of the Common Stock on the
Nasdaq National Market under the symbol "SNEL".
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock covered by this
Prospectus will be passed upon for the Company by Gardere & Wynne, L.L.P.,
Dallas, Texas. Certain legal matters pertaining to the Common Stock will be
passed upon for the Underwriters by Manatt, Phelps & Phillips, LLP, Los Angeles,
California.
EXPERTS
The Consolidated Financial Statements and related schedules of the Company
as of December 31, 1995 and 1996, and for each of the two fiscal years then
ended, for the seven months ended December 31, 1994, and for the fiscal year
ended May 31, 1994, and the combined financial statements of the B.A.T. Group as
of December 31, 1994 and 1995, and for each of the two years then ended,
appearing in this Prospectus and the registration statement have been audited by
Grant Thornton LLP, independent certified public accountants, as set forth in
their reports thereon appearing elsewhere in this Prospectus, and are included
upon the authority of that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a registration statement on Form
S-1 under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus, which is a part of the registration statement, does not
contain all of the information set forth in the registration statement and the
exhibits filed therewith. For further information concerning the Company and the
Common Stock, reference is made to the registration statement and to the
exhibits and schedules filed therewith. Statements contained in this Prospectus
as to the contents of any contract, agreement or other document are not
necessarily complete, and, in each instance, reference is made to the copy of
the document filed as an exhibit to the registration statement, each such
statement being qualified in all respects by reference to such exhibit. Copies
of the registration statement and the exhibits may be inspected without charge
at the public reference section of the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the regional
offices of the Commission located at Seven World Trade Center, 13th Floor, New
York, New York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such documents may be obtained from the public reference
section of the Commission upon payment of the prescribed fees or on the Internet
at http://www.sec.gov.
53
<PAGE> 55
The Company intends to furnish its shareholders with annual reports
containing audited financial statements certified by an independent public
accounting firm and quarterly reports for the first three quarters of each
fiscal year containing unaudited financial information.
54
<PAGE> 56
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements -- Snelling and Snelling, Inc.
Report of Independent Certified Public Accountants........ F-2
Consolidated Balance Sheets............................... F-3
Consolidated Statements of Earnings....................... F-4
Consolidated Statement of Changes in Shareholders'
Equity................................................. F-5
Consolidated Statements of Cash Flows..................... F-6
Notes to Consolidated Financial Statements................ F-7
Financial Statements -- B.A.T. Group
Report of Independent Certified Public Accountants........ F-18
Combined Balance Sheets................................... F-19
Combined Statements of Earnings........................... F-20
Combined Statement of Changes in Stockholders' Equity..... F-21
Combined Statements of Cash Flows......................... F-22
Notes to Combined Financial Statements.................... F-23
Pro Forma Condensed Financial Statement
Pro Forma Condensed Statement of Earnings................. F-29
Notes to Pro Forma Condensed Statement of Earnings........ F-30
</TABLE>
F-1
<PAGE> 57
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Snelling and Snelling, Inc.
We have audited the consolidated balance sheets of Snelling and Snelling,
Inc. as of December 31, 1995 and 1996, and the related consolidated statements
of earnings, changes in shareholders' equity and cash flows for the year ended
May 31, 1994, the seven months ended December 31, 1994, and the years ended
December 31, 1995 and 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Snelling and Snelling, Inc. as of December 31, 1995 and 1996, and the
consolidated results of its operations and its consolidated cash flows for the
year ended May 31, 1994, the seven months ended December 31, 1994, and the years
ended December 31, 1995 and 1996 in conformity with generally accepted
accounting principles.
GRANT THORNTON LLP
Dallas, Texas
April 25, 1997 (except for Note 11 as to
which the date is October 2, 1997
and Note 16 as to which the date is
November , 1997)
The foregoing report is in the form which will be signed upon consummation
of the transaction described in Note 16 to the financial statements.
/s/ GRANT THORNTON LLP
Dallas, Texas
October 15, 1997
F-2
<PAGE> 58
SNELLING AND SNELLING, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
----------------- JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets
Cash and cash equivalents................................. $ 369 $ 549 $ 2,313
Receivables, less allowance for doubtful accounts of $201,
$349 and $681.......................................... 14,321 21,369 22,631
Prepaid expenses and other current assets................. 1,009 2,392 2,046
Refundable and deferred income taxes...................... 540 394 1,227
------- ------- -------
Total current assets.............................. 16,239 24,704 28,217
Fixed assets, net........................................... 3,736 5,054 4,729
Intangible assets, net...................................... 2,380 20,968 21,395
Other assets................................................ 724 1,329 1,338
------- ------- -------
$23,079 $52,055 $55,679
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt...................... $ 447 $ 4,014 $ 1,880
Short-term borrowings..................................... 2,504 2,876 353
Accounts payable-trade.................................... 846 1,024 683
Other current liabilities................................. 6,976 8,444 11,154
------- ------- -------
Total current liabilities......................... 10,773 16,358 14,070
Long-term debt, less current maturities..................... 1,825 22,411 26,779
Other noncurrent liabilities
Deferred rent payable..................................... 899 739 648
Other..................................................... 250 221 286
------- ------- -------
1,149 960 934
------- ------- -------
Total liabilities................................. 13,747 39,729 41,783
Commitments and contingencies............................... -- -- --
Shareholders' equity
Preferred stock, $.01 par value; authorized, 10,000,000
shares; none issued.................................... -- -- --
Class A common stock, $.01 par value; authorized,
100,000,000 shares; none issued........................ -- -- --
Class B common stock, $.01 par value; authorized,
15,000,000 shares; issued, 6,408,840 shares in 1995,
6,324,094 shares in 1996 and 5,126,866 shares in
1997................................................... 59 58 47
Capital in excess of par value............................ 246 243 197
Retained earnings......................................... 11,559 14,696 13,652
------- ------- -------
11,864 14,997 13,896
Less treasury stock, at cost (1,171,853 of Class B common
shares in 1995 and 1,171,474 of Class B common shares
in 1996)............................................... 2,532 2,671 --
------- ------- -------
Total shareholders' equity........................ 9,332 12,326 13,896
------- ------- -------
$23,079 $52,055 $55,679
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 59
SNELLING AND SNELLING, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEVEN
MONTHS YEARS ENDED
ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
YEAR ENDED DECEMBER 31, --------------------- -------------------------
MAY 31, 1994 1994 1995 1996 1996 1997
------------ ------------ --------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues..................... $ 70,202 $ 59,309 $ 122,701 $ 168,602 $ 73,043 $ 106,380
Cost of services............. 47,456 40,221 87,943 122,945 52,368 79,440
---------- --------- --------- --------- --------- ---------
Gross profit....... 22,746 19,088 34,758 45,657 20,675 26,940
Selling, general and
administrative expenses.... 14,116 8,859 15,384 19,600 8,877 13,594
Franchises' share of gross
profit..................... 8,648 8,659 14,682 19,587 9,319 10,076
---------- --------- --------- --------- --------- ---------
Operating profit
(loss)........... (18) 1,570 4,692 6,470 2,479 3,270
Other income (expense)
Interest expense........... (66) (71) (379) (1,100) (384) (1,258)
Gain on sale of assets of
subsidiary.............. -- -- -- -- -- 678
Other...................... 348 63 97 105 44 13
---------- --------- --------- --------- --------- ---------
282 (8) (282) (995) (340) (567)
---------- --------- --------- --------- --------- ---------
Earnings before
income taxes..... 264 1,562 4,410 5,475 2,139 2,703
Income tax expense........... 152 704 1,720 2,161 848 1,077
---------- --------- --------- --------- --------- ---------
NET EARNINGS....... $ 112 $ 858 $ 2,690 $ 3,314 $ 1,291 $ 1,626
========== ========= ========= ========= ========= =========
Earnings per share........... $ .02 $ .12 $ .38 $ .48 $ .18 $ .24
========== ========= ========= ========= ========= =========
Weighted average common and
common equivalent shares... 7,067,662 7,011,698 7,007,062 6,965,843 7,000,608 6,917,421
========== ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 60
SNELLING AND SNELLING, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CAPITAL
COMMON SHARES IN EXCESS TREASURY STOCK
------------------- OF PAR RETAINED --------------------
SHARES AMOUNT VALUE EARNINGS SHARES AMOUNT
---------- ------ --------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 1, 1993........... 6,475,321 $ 60 $249 $ 8,040 1,138,864 $ 2,553
Net earnings.................... -- -- -- 112 -- --
Purchase of treasury stock...... -- -- -- -- 88,672 115
---------- ---- ---- ------- ---------- -------
BALANCE AT MAY 31, 1994........... 6,475,321 60 249 8,152 1,227,536 2,668
Net earnings.................... -- -- -- 858 -- --
Purchase of treasury stock...... -- -- -- -- 1,083 2
Retirement of treasury stock.... (66,481) (1) (3) (141) (66,481) (145)
---------- ---- ---- ------- ---------- -------
BALANCE AT DECEMBER 31, 1994...... 6,408,840 59 246 8,869 1,162,138 2,525
Net earnings.................... -- -- -- 2,690 -- --
Purchase of treasury stock...... -- -- -- -- 9,715 7
---------- ---- ---- ------- ---------- -------
BALANCE AT DECEMBER 31, 1995...... 6,408,840 59 246 11,559 1,171,853 2,532
Net earnings.................... -- -- -- 3,314 -- --
Purchase of treasury stock...... -- -- -- -- 83,186 320
Retirement of treasury stock.... (84,746) (1) (3) (177) (83,565) (181)
---------- ---- ---- ------- ---------- -------
BALANCE AT DECEMBER 31, 1996...... 6,324,094 58 243 14,696 1,171,474 2,671
Net earnings.................... -- -- -- 1,626 -- --
Purchase and retirement of
stock........................ (20,339) (1) (1) (33) -- --
Purchase of treasury stock...... -- -- -- -- 5,415 21
Retirement of treasury stock.... (1,176,889) (10) (45) (2,637) (1,176,889) (2,692)
---------- ---- ---- ------- ---------- -------
BALANCE AT JUNE 30, 1997
(unaudited)..................... 5,126,866 $ 47 $197 $13,652 -- $ --
========== ==== ==== ======= ========== =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 61
SNELLING AND SNELLING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEVEN MONTHS YEARS ENDED
ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
YEAR ENDED DECEMBER 31, ------------------ -------------------------
MAY 31, 1994 1994 1995 1996 1996 1997
------------ ------------ ------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net earnings........................... $ 112 $ 858 $ 2,690 $ 3,314 $ 1,291 $ 1,626
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Depreciation and amortization....... 861 403 798 1,449 594 1,027
Provision for losses on
receivables....................... 375 68 74 226 69 211
Provision for loss on investments... 55 120 -- -- -- --
Gain on sale of assets of
subsidiary........................ -- -- -- -- -- (678)
Changes in operating assets and
liabilities
Receivables....................... (3,723) (1,844) (3,461) (7,275) (1,536) (2,602)
Prepaid expenses and other current
assets......................... 213 216 277 (648) 174 342
Other assets...................... 250 320 (24) (891) (820) (101)
Accounts payable and other current
liabilities.................... 2,229 1,064 1,664 1,622 300 2,280
Refundable and deferred income
taxes.......................... (325) (271) (9) 308 (339) (739)
Other noncurrent liabilities...... 63 (96) (142) (189) (93) (86)
------- ------- ------- -------- ------- -------
Net cash provided by (used in)
operating activities......... 110 838 1,867 (2,084) (360) 1,280
Cash Flows From Investing Activities
Proceeds from sale of assets........... 9 3 32 60 2 1,940
Capital expenditures................... (380) (286) (2,527) (2,014) (1,292) (225)
Acquisition of businesses.............. -- (915) (1,002) (9,764) (875) (920)
------- ------- ------- -------- ------- -------
Net cash provided by (used in)
investing activities......... (371) (1,198) (3,497) (11,718) (2,165) 795
------- ------- ------- -------- ------- -------
Cash Flows From Financing Activities
Proceeds from debt..................... 836 -- 3,033 17,518 2,984 6,264
Repayments of debt..................... (60) (255) (1,288) (3,216) (742) (6,554)
Purchase of treasury stock............. (115) (2) (7) (320) -- (21)
------- ------- ------- -------- ------- -------
Net cash provided by (used in)
financing activities......... 661 (257) 1,738 13,982 2,242 (311)
------- ------- ------- -------- ------- -------
Net Increase (Decrease) In Cash And Cash
Equivalents............................ 400 (617) 108 180 (283) 1,764
Cash And Cash Equivalents:
At Beginning Of Period................. 478 878 261 369 369 549
------- ------- ------- -------- ------- -------
At End Of Period....................... $ 878 $ 261 $ 369 $ 549 $ 86 $ 2,313
======= ======= ======= ======== ======= =======
</TABLE>
See Note 14 for supplemental disclosure of cash flows and noncash investing and
financing transactions.
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 62
SNELLING AND SNELLING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of Snelling and Snelling, Inc. (Snelling) and all of its
subsidiaries (collectively, the Company). All significant intercompany accounts
and transactions have been eliminated.
BUSINESS AND REVENUE RECOGNITION -- The Company provides career and
flexible staffing services through Company owned and franchised offices located
primarily throughout the United States. The Company services a wide variety of
customers, none with any significant geographic or revenue concentration.
Revenue from services is recognized at the time the services are provided.
Revenue from the sale of franchises is recognized when the franchised office
begins operations and a substantial portion of the sales price is received. The
Company also receives revenues from sales of employment services and from fees
earned on sales of employment services (career placement and flexible staffing)
by its franchise operations.
The Company has two types of franchises for purposes of flexible staffing
services revenue recognition. With the first type, the Company records franchise
royalties, based on a contractual percentage of flexible staffing services
billings, in the period in which the franchise collects for the services
provided. The second type of franchises participate in the Company's pay/bill
processing program. With the second type, the Company has a direct contractual
relationship with the clients for the services, holds title to the related
receivables and is the legal employer of the flexible staffing employees.
Revenues generated by these franchises and the related direct costs of services
are included as part of the Company's revenues and costs of services in the
period in which the services are provided. The net distribution paid to
franchises participating in the pay/bill processing program is an operating
expense recorded by the Company as franchises' share of gross profit and is
based on either a percentage of the flexible staffing services billings or a
percentage of the gross profit generated.
ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The carrying amounts for cash,
receivables and accounts payable approximate fair value because of the
short-term nature of these items. The fair value for long-term debt approximates
its carrying value because interest rates are tied to market.
FIXED ASSETS -- Fixed assets are stated at cost. Depreciation is provided
using the straight-line method, principally over the following useful lives:
equipment, five to ten years; computer hardware and software, five years.
Amortization of leasehold improvements is provided using the straight-line
method over the life of the lease or the asset, whichever is shorter.
INTANGIBLES -- Intangible assets primarily consist of goodwill related to
acquisitions of businesses. The cost in excess of the fair value of net assets
acquired (goodwill) is amortized by the straight-line method over 40 years.
Other intangible assets consist of covenants not to compete that are amortized
over the term of the agreements.
The Company evaluates the recoverability of its goodwill and other
intangibles in relation to the anticipated cash flows on an undiscounted basis.
Based on this evaluation, the Company believes that no material impairment of
intangible assets exists at December 31, 1996.
F-7
<PAGE> 63
SNELLING AND SNELLING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
WORKERS' COMPENSATION -- The Company is self-insured up to specified limits
for certain risks related to workers' compensation liability. Workers'
compensation costs are accrued based upon the aggregate of the liability for
reported claims and loss adjustment expenses and an actuarially-determined
estimated liability for claims incurred but not reported. The estimated costs of
reported claims are accrued based upon loss development trends and may be
revised in the future based on changes in the value of those claims.
INCOME TAXES -- Deferred tax assets and liabilities are determined based on
the differences between financial statement and income tax bases of assets and
liabilities using the enacted tax rates in effect.
DEFERRED RENT -- The cost of the Company's lease for office space is
accounted for by the straight-line method. The difference between the net cash
requirements of the lease and the straight-line method is reflected on the
balance sheet as deferred rent payable.
STATEMENTS OF CASH FLOWS -- For purposes of the consolidated statements of
cash flows, the Company considers all highly liquid investments with a maturity
of three months or less at the time of purchase to be cash equivalents.
STOCK OPTIONS -- The Company accounts for stock-based employee compensation
as prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and the related interpretations. The pro forma
information required by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" is disclosed in Note 12.
ADVERTISING EXPENSE -- Advertising costs are expensed as incurred.
Advertising expense was $153,000 for the year ended May 31, 1994, $57,000 for
the seven months ended December 31, 1994 and $204,000 and $376,000 for the years
ended December 31, 1995 and 1996, respectively, and $133,000 and $361,000 for
the six months ended June 30, 1996 and 1997, respectively.
CONCENTRATION OF CREDIT RISK -- The Company provides staffing services on a
national basis. Credit risks are minimized due to the nature of the staffing
business, large number of customers and diversity of industries serviced. The
Company continually analyzes the creditworthiness of its customers.
EARNINGS PER SHARE -- Earnings per share were computed by dividing net
earnings applicable to common stock by the weighted average number of shares of
common stock and common stock equivalents outstanding during the period after
giving retroactive effect to the common stock reclassification in November 1997
(Note 16). Stock options granted during the twelve months prior to the filing of
the Company's Registration Statement on Form S-1 have been included in the
calculation of common equivalent shares using the treasury stock method as if
they were outstanding for all periods presented. In computing the number of
shares that could have been purchased with the proceeds from exercise, the
estimated initial public offering price was used.
INTERIM STATEMENTS -- In the opinion of management, the unaudited interim
financial statements as of June 30, 1997 and for the six months ended June 30,
1996 and 1997 include all adjustments, consisting only of those of a normal
recurring nature, necessary to present fairly the Company's financial position
as of June 30, 1997 and the results of its operations and cash flows for the
six-month periods ended June 30, 1996 and 1997. The results of operations for
the six months ended June 30, 1997 are not necessarily indicative of the results
to be expected for the full year.
F-8
<PAGE> 64
SNELLING AND SNELLING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
NOTE 2 -- ACQUISITIONS
From June 1, 1994, through June 30, 1997, the Company acquired 19 franchise
locations and seven independent staffing locations.
The acquisitions were accounted for under the purchase method of accounting
and are included in the consolidated financial statements from the dates of
acquisition.
The following table summarizes the Company's acquisition activity since
June 1, 1994. Included in the amounts paid are expenses of the acquisitions:
<TABLE>
<CAPTION>
SEVEN MONTHS YEARS ENDED
ENDED DECEMBER 31,
DECEMBER 31, -----------------
1994 1995 1996
------------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid............................................. $ 915 $1,002 $ 9,764
Amounts due sellers of business....................... 433 400 9,489
------ ------ -------
Total....................................... $1,348 $1,402 $19,253
====== ====== =======
</TABLE>
Five of the 19 franchise locations acquired are located in the Chicago
area. The locations were purchased from a group of corporations (the B.A.T.
Group Acquisition), which were affiliated, in simultaneous transactions in
November 1996.
Three of the 19 franchise locations acquired, which are located in the
Kansas City area, were purchased from a single corporation in March 1996 (the
Kansas City Acquisition).
The following unaudited pro forma information has been prepared assuming
that the B.A.T. Group and Kansas City Acquisitions had occurred at the beginning
of the periods presented, after including the impact of certain adjustments,
such as: amortization of intangibles, interest expense on acquisition debt,
decreased state unemployment tax rates, decreased workers' compensation
liability rates, decreased executive compensation, eliminations of intercompany
transactions, and the related effects on income taxes. Pro forma adjustments
reflecting anticipated "efficiencies" in operations are not permitted under
generally accepted accounting principles. As a result of the limitations imposed
with regard to the types of permitted pro forma adjustments, the Company
believes that this unaudited pro forma information is not indicative of future
results of operations, nor the results of historical operations had the B.A.T.
Group and Kansas City Acquisitions been consummated as of the assumed dates.
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------- ---------
1995 1996 1996
----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues............................................ $144,657 $185,396 $82,275
Net earnings........................................ $ 2,991 $ 3,623 $ 1,322
Earnings per share.................................. $ .43 $ .52 $ .19
</TABLE>
All other acquisitions of franchise locations and independent personnel
service locations were insignificant to the overall financial results of the
periods presented and, therefore are not included in the pro forma information.
F-9
<PAGE> 65
SNELLING AND SNELLING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
NOTE 3 -- FIXED ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30,
1995 1996 1997
------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Computer hardware and software.............................. $4,912 $6,855 $6,801
Equipment................................................... 553 654 532
Leasehold improvements...................................... 691 710 749
Other....................................................... 321 414 243
------ ------ ------
6,477 8,633 8,325
Less accumulated depreciation and amortization.............. 2,741 3,579 3,596
------ ------ ------
$3,736 $5,054 $4,729
====== ====== ======
</TABLE>
Capitalized leases included above were approximately $1,848,000, $2,272,000
and $2,066,000 at December 31, 1995 and 1996 and June 30, 1997, respectively.
These consisted primarily of leases for computer hardware and software related
to systems conversions in the offices of both the Company and its franchisees.
NOTE 4 -- INTANGIBLES
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1995 1996 1997
------ ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Goodwill................................................... $2,310 $21,228 $21,876
Covenants not to compete................................... 450 575 590
------ ------- -------
2,760 21,803 22,466
Less accumulated amortization.............................. 380 835 1,071
------ ------- -------
$2,380 $20,968 $21,395
====== ======= =======
</TABLE>
NOTE 5 -- OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1995 1996 1997
---- ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Loan origination fees (net of accumulated amortization of
$147,000 and $233,000 in 1996 and 1997)................... $ -- $ 659 $ 573
Deferred financing costs.................................... -- -- 89
Long-term investments, at cost (net of allowance of
approximately $325,000 in 1995, 1996 and 1997)............ 9 39 39
Cash surrender value of officer life insurance.............. 569 624 637
Deferred income taxes....................................... 146 7 --
---- ------ ------
$724 $1,329 $1,338
==== ====== ======
</TABLE>
F-10
<PAGE> 66
SNELLING AND SNELLING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
NOTE 6 -- SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1995 1996 1997
------ ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Bank line of credit.................................... $1,985 $ -- $ --
Short-term notes financing acquisitions, at interest
rates from 8.25% to 9.25%............................ -- 2,306 113
Other debt, at interest rates from 7.0% to 9.7%........ 519 570 240
------ ------- ------
$2,504 $ 2,876 $ 353
====== ======= ======
Weighted average interest rate......................... 8.38% 8.08% 7.88%
====== ======= ======
</TABLE>
NOTE 7 -- LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1995 1996 1997
------ ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revolving credit facility.............................. $ -- $ 9,013 $ 8,277
Acquisition credit facility............................ -- 7,478 13,618
Acquisition note payable in quarterly installments
through 2001, at 8.25% interest...................... -- 6,058 3,465
Other acquisition notes payable in installments through
2000, with interest ranging from 6% to 9.25%......... 628 1,604 1,233
Capitalized lease obligations, payable in varying
monthly installments through 2001, collateralized by
the related equipment................................ 2,203 2,919 2,425
------ ------- -------
2,831 27,072 29,018
Less amount representing interest on capital lease
obligations, imputed at rates ranging from 8.95% to
17.18%............................................... 559 647 359
------ ------- -------
2,272 26,425 28,659
Less current maturities................................ 447 4,014 1,880
------ ------- -------
$1,825 $22,411 $26,779
====== ======= =======
</TABLE>
Aggregate maturities of long-term debt for the five years following
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997........................................... $ 4,014
1998........................................... 1,884
1999........................................... 1,942
2000........................................... 1,225
2001........................................... 17,360
-------
$26,425
=======
</TABLE>
During 1996, the Company negotiated a new Senior Credit Facility, which
expires in January 2001, with BankBoston, N.A. ("BankBoston") and a syndicate of
other banks. At December 31, 1996, the Senior Credit Facility provided for a
maximum revolving facility of $15.0 million (based on the Company's eligible
F-11
<PAGE> 67
SNELLING AND SNELLING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
receivables) and a $25.0 million acquisition facility. The Company's ability to
request additional advances under the acquisition facility terminates on January
31, 1998. Optional prepayments are allowed on both facilities, and any remaining
unpaid balance on either facility is due in January 2001. Mandatory repayment of
amounts borrowed under the revolving facility is based on daily bank clearings
of deposits. For the acquisition facility, mandatory repayments included: (1)
quarterly payments based on a five year amortization; and (2) annual payments
based on the Company's excess cash flow (as defined in the Senior Credit
Facility). However, all payments due on the acquisition facility are required to
be funded from the revolving facility. As a result, no portion of either
facility is included in current maturities of debt at December 31, 1996 or June
30, 1997, since the revolving facility has no current maturity at either date
and there was sufficient availability under the revolving facility at both dates
to fund the mandatory repayments on the acquisition facility during the
following year.
At the Company's option, interest is calculated based on a combination of
the following: (i) BankBoston's base rate or the London Interbank Offered Rate
("LIBOR") plus (ii) from 0.5% to 3.0% depending on the facility and certain
financial ratios of the Company. The average rate at December 31, 1996 was 8.20%
on the acquisition facility and 8.09% on the revolving facility. The Senior
Credit Facility requires the Company to pay a commitment fee ranging from .375%
to .500% per annum depending on certain financial ratios on the unused amount of
the credit line (approximately $23.5 million at December 31, 1996). The Senior
Credit Facility also includes financial covenants regarding the Company's
working capital, consolidated net worth, earnings coverage to debt, interest and
fixed charges and limitations on annual capital expenditures. Borrowings under
the Senior Credit Facility are collateralized by substantially all of the
Company's assets, along with an agreement that provides for the pledge by
certain shareholders of the Company of at least 50% of the voting power of the
outstanding common shares of the Company.
Availability under the Senior Credit Facility at June 30, 1997 was $17.2
million.
Subsequent to June 30, 1997, the Senior Credit Facility was amended to
increase the revolving facility to a maximum of $22.5 million and to modify
certain of its financial covenants.
The Company had outstanding irrevocable standby letters of credit as of
December 31, 1995 and 1996, and June 30, 1997 in the total principal amounts of
$4,176,000, $3,163,000 and $4,163,000, respectively, primarily in connection
with the Company's workers' compensation insurance program.
NOTE 8 -- OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1995 1996 1997
------ ------ -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Accrued expenses
Compensation....................................... $2,388 $1,877 $ 976
Taxes, other than income taxes..................... 1,172 1,201 2,035
Insurance.......................................... 669 2,148 2,191
Rebates to franchisees............................. 209 250 95
Other expenses..................................... 732 452 825
Cash overdraft..................................... 1,806 2,516 5,032
------ ------ -------
$6,976 $8,444 $11,154
====== ====== =======
</TABLE>
F-12
<PAGE> 68
SNELLING AND SNELLING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
NOTE 9 -- INCOME TAXES
The provision for income taxes in the consolidated statements of earnings
is comprised of the following:
<TABLE>
<CAPTION>
SEVEN MONTHS YEARS ENDED SIX MONTHS ENDED
YEAR ENDED ENDED DECEMBER 31, JUNE 30,
MAY 31, DECEMBER 31, --------------- ----------------
1994 1994 1995 1996 1996 1997
---------- ------------ ------ ------ ----- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Current expense............... $ 329 $ 922 $1,258 $1,759 $691 $ 885
Federal..................... 108 144 199 389 153 194
----- ------ ------ ------ ---- ------
State....................... 437 1,066 1,457 2,148 844 1,079
----- ------ ------ ------ ---- ------
Deferred expense (benefit)
Federal..................... (228) (308) 154 10 3 (2)
State....................... (57) (54) 109 3 1 --
----- ------ ------ ------ ---- ------
(285) (362) 263 13 4 (2)
----- ------ ------ ------ ---- ------
$ 152 $ 704 $1,720 $2,161 $848 $1,077
===== ====== ====== ====== ==== ======
</TABLE>
The income tax provision, reconciled to the tax computed at the statutory
Federal rate, is as follows:
<TABLE>
<CAPTION>
SEVEN MONTHS YEARS ENDED SIX MONTHS ENDED
YEAR ENDED ENDED DECEMBER 31, JUNE 30,
MAY 31, DECEMBER 31, ---------------- ----------------
1994 1994 1995 1996 1996 1997
----------- ------------ ------ ------ ----- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory rate......... $ 90 $531 $1,499 $1,861 $727 $ 919
State income taxes, net of
Federal benefit............. 12 97 202 258 101 133
Other......................... 50 76 19 42 20 25
---- ---- ------ ------ ---- ------
Total............... $152 $704 $1,720 $2,161 $848 $1,077
==== ==== ====== ====== ==== ======
</TABLE>
F-13
<PAGE> 69
SNELLING AND SNELLING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
The components of the net deferred tax asset were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------ JUNE 30,
1995 1996 1997
---- ---- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets
Allowance for doubtful accounts........................... $ 78 $135 $ 263
Accrued expenses.......................................... 306 346 336
Fixed assets.............................................. 28 -- --
Intangible assets......................................... 42 5 --
---- ---- -----
454 486 599
---- ---- -----
Deferred tax liabilities
Deferred rent............................................. 26 50 79
Fixed assets.............................................. -- 11 44
Intangible assets......................................... -- -- 47
Other..................................................... 14 24 26
---- ---- -----
40 85 196
---- ---- -----
Net deferred tax asset...................................... $414 $401 $ 403
==== ==== =====
Balance sheet classifications:
Current deferred tax asset................................ $268 $394 $ 512
Noncurrent deferred tax asset (liability)................. 146 7 (109)
---- ---- -----
$414 $401 $ 403
==== ==== =====
</TABLE>
NOTE 10 -- EMPLOYEE BENEFIT PLANS
The Company has a 401(k) Plan (the Plan) for employees, under which
employee contributions qualify as salary reductions. The Company is required to
match 25% of the employee's salary reduction contributions and, at its option,
may make discretionary contributions. Substantially all of the full-time
employees of the Company who are not members of a collective bargaining unit, as
well as flexible staffing employees who meet certain requirements regarding
hours worked, are eligible for the Plan after one year of service. Company
contributions become fully vested to participants after five years. Effective
June 1, 1994, the Company suspended all contributions to the Plan. Subsequent to
December 31, 1994, the Plan was amended and both employee and Company
contributions were permitted. Company contributions to the Plan were
approximately $230,000, $25,000, $34,000 and $24,000 for the years ended May 31,
1994, December 31, 1995 and 1996, and the six months ended June 30, 1997,
respectively. There were no contributions for the seven months ended December
31, 1994 or the six months ended June 30, 1996.
One of the Company's subsidiaries had a non-contributory, defined
contribution pension plan for employees who work 1,000 hours or more per year.
Pension expense for this plan is computed based upon the number of hours worked
at $.35 per hour for the year ended December 31, 1996 and $.30 per hour for the
year ended December 31, 1995 and for the seven months ended December 31, 1994.
Contributions were approximately $40,000 and $63,000 for the years ended
December 31, 1996 and 1995, and $11,000 for the seven months ended December 31,
1994. No contributions were made for the six months ended June 30, 1996. The
operations and substantially all of the assets of the subsidiary were sold in
January 1997.
F-14
<PAGE> 70
SNELLING AND SNELLING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company is obligated under various noncancellable operating leases for
computer hardware and software, office space and furnishings through 2005. Total
rental expense was approximately $899,000 for the year ended May 31, 1994,
$544,000 for the seven months ended December 31, 1994, and $956,000 and
$1,099,000 for the years ended December 31, 1995 and 1996, respectively, and
$467,000 and $982,000 for the six months ended June 30, 1996 and 1997,
respectively, including short-term automobile and equipment rentals. The future
minimum lease payments under all long-term noncancellable operating leases at
December 31, 1996 are approximately as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997........................................... $1,670
1998........................................... 1,679
1999........................................... 1,443
2000........................................... 1,198
2001........................................... 744
Future years................................... 272
------
$7,006
======
</TABLE>
Legal
Several legal actions arising in the ordinary course of business are
pending or in process against the Company. In the opinion of management, the
eventual disposition of these actions will have no material adverse effect on
the financial position, results of operations or liquidity of the Company.
Employment Agreements
The Company has agreements, expiring between 2001 and 2006, with several
executive officers providing for cash compensation and other benefits in the
event of termination without cause or a change in control of the Company.
In October 1997, the Company entered into a 15-year employment agreement
with its chief executive officer, Robert O. Snelling, Sr. The agreement provides
for annual compensation of $475,000, adjusted for Consumer Price Index changes.
In the event of termination of employment, Mr. Snelling is entitled to receive
annual compensation equal to 75% of his then base salary for the remaining term
plus five years. In the event of death, the spouse of Mr. Snelling is entitled
to receive two-thirds of the amount he would otherwise receive. If there is a
change in control of the Company, Mr. Snelling can request a lump-sum payment
equal to the present value of the future benefits under the agreement.
NOTE 12 -- STOCK OPTIONS
The 1996 Stock Option Plan provides for the granting of incentive and
non-qualified stock options. A total of 2,978,286 shares of Class B common stock
is authorized for issuance to certain employees of the Company. The options
granted have ten year terms and have either immediate vesting or graded vesting
over five years. The exercise price may not be less than the fair market value
on the measurement date.
F-15
<PAGE> 71
SNELLING AND SNELLING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
The following table reflects activity under the stock option plan as of
December 31, 1996 and the weighted average exercise price per share:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE PRICE
STOCK OPTIONS PER SHARE
------------- --------------
<S> <C> <C>
Outstanding -- January 1, 1996............................ --
Granted................................................... 2,599,232 $3.85
---------
Outstanding -- December 31, 1996 and June 30, 1997........ 2,599,232 $3.85
=========
Options exercisable at December 31, 1996 and June 30,
1997.................................................... 2,339,309 $3.85
=========
</TABLE>
The Company accounts for these plans under Accounting Principles Board
Opinion No. 25. Accordingly, no compensation cost has been recognized for the
stock option plan. Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123) requires pro forma
disclosures of net earnings and earnings per share based upon the fair value of
options granted. The fair value of each option has been estimated as of the
measurement date, using present value calculations with the following
assumptions:
<TABLE>
<S> <C>
Risk-free interest rate.................................... 6%
Dividend yield............................................. 0%
Expected life.............................................. 5 years
Volatility................................................. 36%
</TABLE>
The weighted average fair value of options granted in 1996 was $1.58 per
share. Had compensation for stock options been accounted for under Financial
Accounting Standards No. 123, the effect on the Company's net earnings and
earnings per share for the year ended December 31, 1996 would have been as
follows:
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
----------- ---------
<S> <C> <C>
Net earnings (in thousands)................................. $3,314 $1,042
====== ======
Earnings per share.......................................... $ .48 $ .15
====== ======
</TABLE>
NOTE 13 -- REVENUES
Total system-wide placement sales for Company-owned branch locations and
franchise locations were approximately $225.3 million for the year ended May 31,
1994, $166.3 million for the seven months ended December 31, 1994, $318.9
million and $373.0 million for the years ended December 31, 1995 and 1996,
respectively, and $206.2 million for the six months ended June 30, 1997.
F-16
<PAGE> 72
SNELLING AND SNELLING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
NOTE 14 -- CASH FLOW INFORMATION
Supplemental information on cash flows and noncash investing and financing
transactions is as follows:
<TABLE>
<CAPTION>
SEVEN MONTHS YEAR ENDED SIX MONTHS ENDED
ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, ---------------- -----------------
1994 1995 1996 1996 1997
------------ ------ ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Supplemental cash flow information
Interest paid.......................... $ 71 $ 351 $ 843 $ 295 $1,099
===== ====== ======= ====== ======
Income taxes paid...................... $ 561 $2,203 $ 1,853 $1,187 $1,816
===== ====== ======= ====== ======
Supplemental data on noncash investing
and financing activities
Note issued for purchase of insurance
policies............................ $ 488 $ 714 $ 736 $ 269 $ --
===== ====== ======= ====== ======
Purchase of businesses
Fair value of tangible assets
acquired.......................... $ 109 $ 112 $ 210 $ 75 $ 25
Goodwill............................ 1,189 890 18,918 1,450 880
Covenants not to compete............ 50 400 125 25 15
Debt issued......................... (433) (400) (9,489) (675) --
----- ------ ------- ------ ------
Cash paid........................... $ 915 $1,002 $ 9,764 $ 875 $ 920
===== ====== ======= ====== ======
</TABLE>
NOTE 15 -- SALE OF SUBSIDIARY
During January 1997, the Company sold substantially all the assets of a
subsidiary company, realizing a net gain on sale of $678,000.
NOTE 16 -- RECAPITALIZATION
In November 1997, the Company amended its articles of incorporation to
provide for the issuance of 100,000,000 shares of Class A common stock,
15,000,000 shares of Class B common stock and 10,000,000 shares of preferred
stock. This recapitalization had the effect of a 5.415067 for 1 split of its
Class B common shares at that time. No shares of Class A common stock or
preferred stock have been issued. Each share of Class B common stock is entitled
to ten votes, and each share of Class A is entitled to one vote.
The consolidated financial statements, including all references to number
of shares and per share data, have been adjusted to reflect the stock split.
NOTE 17 -- SUBSEQUENT EVENT (UNAUDITED)
In October 1997, the Company acquired an independent staffing location in
New York City for $6.0 million in total consideration.
F-17
<PAGE> 73
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
B.A.T. Group Holdings, Inc.,
KAL Help Enterprises, Inc.,
Par Three Help Services, Inc., and
Par Four Services, Inc.
We have audited the combined balance sheets of B.A.T. Group Holdings, Inc.,
KAL Help Enterprises, Inc., Par Three Help Services, Inc. and Par Four Services,
Inc. (collectively, B.A.T. Group) as of December 31, 1994 and 1995, and the
related combined statements of earnings, changes in stockholders' equity and
cash flows for the years then ended. These combined financial statements are the
responsibility of the management of B.A.T. Group. Our responsibility is to
express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of B.A.T.
Group as of December 31, 1994 and 1995, and the combined results of its
operations and its combined cash flows for the years then ended, in conformity
with generally accepted accounting principles.
Dallas, Texas
August 15, 1997
F-18
<PAGE> 74
B.A.T. GROUP
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
------------------------ SEPTEMBER 30,
1994 1995 1996
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets
Cash and cash equivalents........................... $ 1,000 $ 181,848 $ --
Marketable securities available for sale, at market
value (cost -- $410,922 in 1995 and $539,862 in
1996)............................................ -- 420,875 601,175
Receivables -- trade, less allowance for doubtful
accounts of $44,000, $150,000 and $69,000 in
1994, 1995 and 1996.............................. 2,287,025 2,970,338 3,238,461
Prepaid expenses and other current assets........... 23,419 182,498 386,677
---------- ---------- ----------
Total current assets........................ 2,311,444 3,755,559 4,226,313
Equipment and leasehold improvements, net............. 186,028 273,354 281,223
Intangible assets, net................................ 223,097 208,504 286,547
---------- ---------- ----------
Total assets................................ $2,720,569 $4,237,417 $4,794,083
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Cash overdraft...................................... $ 81,713 $ -- $ 210,437
Current maturities of long-term debt................ 128,444 49,604 91,164
Short-term borrowings............................... 780,000 1,302,374 913,991
Payable to franchisor............................... 171,929 211,978 211,694
Workers' compensation insurance accrual............. 110,506 34,250 59,600
Payroll taxes payable............................... 96,800 151,304 --
Accounts payable and other accrued expenses......... 13,208 41,544 94,622
---------- ---------- ----------
Total current liabilities................... 1,382,600 1,791,054 1,581,508
Long-term debt, less current maturities............... 40,268 46,822 86,604
---------- ---------- ----------
Total liabilities........................... 1,422,868 1,837,876 1,668,112
Commitments and contingencies......................... -- -- --
Stockholders' equity
Common stock........................................ 3,000 108,000 108,000
Unrealized gain on securities available for sale.... -- 9,953 61,313
Retained earnings................................... 1,294,701 2,281,588 2,956,658
---------- ---------- ----------
Total stockholders' equity.................. 1,297,701 2,399,541 3,125,971
---------- ---------- ----------
$2,720,569 $4,237,417 $4,794,083
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-19
<PAGE> 75
B.A.T. GROUP
COMBINED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
-------------------------- SEPTEMBER 30,
1994 1995 1996
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues............................................ $13,827,972 $17,683,665 $13,953,776
Cost of services.................................... 11,225,069 13,846,908 10,786,716
----------- ----------- -----------
Gross profit.............................. 2,602,903 3,836,757 3,167,060
Selling, general and administrative expenses........ 1,653,288 2,192,953 1,912,294
Depreciation and amortization....................... 46,186 88,685 82,653
Management fee paid to affiliate.................... -- 136,000 --
----------- ----------- -----------
Operating profit.......................... 903,429 1,419,119 1,172,113
Other expense
Interest.......................................... 64,796 78,638 51,449
Other............................................. -- 7,382 --
----------- ----------- -----------
64,796 86,020 51,449
----------- ----------- -----------
NET EARNINGS.............................. $ 838,633 $ 1,333,099 $ 1,120,664
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-20
<PAGE> 76
B.A.T. GROUP
COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON
SECURITIES
COMMON AVAILABLE RETAINED
STOCK FOR SALE EARNINGS TOTAL
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at January 1, 1994.................. $ 1,000 $ -- $ 678,710 $ 679,710
Incorporation of KAL Help Enterprises,
Inc....................................... 1,000 -- -- 1,000
Incorporation of Par Three Help Services,
Inc....................................... 1,000 -- -- 1,000
Distributions to stockholders............... -- -- (222,642) (222,642)
Net earnings................................ -- -- 838,633 838,633
-------- ------- ---------- ----------
Balance at December 31, 1994................ 3,000 -- 1,294,701 1,297,701
Incorporation of Par Four Services, Inc..... 105,000 -- -- 105,000
Unrealized gains on securities.............. -- 9,953 -- 9,953
Distributions to stockholders............... -- -- (346,212) (346,212)
Net earnings................................ -- -- 1,333,099 1,333,099
-------- ------- ---------- ----------
Balance at December 31, 1995................ 108,000 9,953 2,281,588 2,399,541
Unrealized gains on securities.............. -- 51,360 -- 51,360
Distributions to stockholders............... -- -- (445,594) (445,594)
Net earnings................................ -- -- 1,120,664 1,120,664
-------- ------- ---------- ----------
Balance at September 30, 1996............... $108,000 $61,313 $2,956,658 $3,125,971
======== ======= ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-21
<PAGE> 77
B.A.T. GROUP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------- SEPTEMBER 30,
1994 1995 1996
----------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings....................................... $ 838,633 $1,333,099 $1,120,664
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization................... 46,186 88,685 82,653
Loss on sale of assets.......................... -- 7,382 --
Changes in operating assets and liabilities
Receivables -- trade.......................... (1,029,464) (683,313) (268,123)
Prepaid expenses and other current assets..... (113,308) (144,476) (204,179)
Accounts payable and accrued expenses......... 322,705 46,633 (73,160)
Cash overdraft................................ 17,146 (81,713) 210,437
----------- ---------- ----------
Net cash provided by operating
activities............................... 81,898 566,297 868,292
Cash flows from investing activities
Capital expenditures............................... (143,947) (183,403) (168,565)
Acquisition of businesses.......................... (217,791) -- --
----------- ---------- ----------
Net cash used in investing activities...... (361,738) (183,403) (168,565)
Cash flows from financing activities
Net change in short-term borrowings................ 305,000 319,000 (199,452)
Purchase of marketable securities.................. -- (207,548) (317,871)
Proceeds from long-term borrowings................. 175,507 73,362 81,342
Repayments of long-term borrowings................. (18,468) (145,648) --
Issuance of common stock........................... 2,000 105,000 --
Distributions to stockholders...................... (222,642) (346,212) (445,594)
----------- ---------- ----------
Net cash provided by (used in) financing
activities............................... 241,397 (202,046) (881,575)
----------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents........................................ (38,443) 180,848 (181,848)
Cash and cash equivalents at beginning of period..... 39,443 1,000 181,848
----------- ---------- ----------
Cash and cash equivalents at end of period........... $ 1,000 $ 181,848 $ --
=========== ========== ==========
</TABLE>
See Note H for supplemental disclosures of cash flow information.
The accompanying notes are an integral part of these statements.
F-22
<PAGE> 78
B.A.T. GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1996 AND THE NINE MONTHS THEN ENDED
IS UNAUDITED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
Basis of Presentation
The accompanying financial statements include the accounts of B.A.T. Group
Holdings, Inc., KAL Help Enterprises, Inc., Par Three Help Services, Inc. and
Par Four Services, Inc. (collectively, B.A.T. Group or the Company). All
significant intercompany accounts and transactions have been eliminated.
Combined financial statements are presented because the companies are under
common control and common management.
Business and Revenue Recognition
The Company provides temporary staffing services to customers in a wide
variety of industries. It operates four locations in Illinois and Michigan under
a franchise arrangement with Snelling and Snelling, Inc.
Revenue from services is recognized at the time the services are provided.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying amounts for cash, receivables and accounts payable approximate
fair value because of the short-term nature of these items. Marketable
securities are carried at market value. Long-term debt bears interest at
floating rates and, therefore, fair value approximates its carrying value.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost. Depreciation is
computed over the estimated useful lives of the assets, principally five to
seven years, using the straight-line method. Amortization of leasehold
improvements is provided using the straight-line method over the life of the
lease or the asset, whichever is shorter.
Intangibles
Intangible assets consist of goodwill and covenants not to compete related
to the acquisition of businesses. The cost in excess of the fair value of net
assets acquired (goodwill) is amortized by the straight-line method over 15
years. Covenants not to compete are amortized over the term of the agreements.
The Company evaluates the recoverability of its goodwill and other
intangibles on an annual basis. Based on these evaluations, the Company believes
that no material impairment of intangible assets exists at December 31, 1995 or
December 31, 1994.
Workers' Compensation
The Company is self-insured up to specified limits for certain risks
related to workers' compensation liability. Workers' compensation costs are
accrued based upon data provided by the insurance companies of the estimated
liability for reported claims and for claims incurred but not reported. The
estimated costs of
F-23
<PAGE> 79
B.A.T. GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1996 AND THE NINE MONTHS THEN ENDED
IS UNAUDITED)
reported claims are accrued based upon loss development trends and may be
revised in the future based on changes in the expected losses of those claims.
Income Taxes
The income taxes on the net earnings are payable personally by the
stockholders pursuant to elections as S Corporations under the Internal Revenue
Code not to have the Companies taxed as corporations.
Advertising Expenses
Advertising costs are expensed as incurred. Advertising expense was
$126,077 and $78,475 for the years ended December 31, 1995 and 1994,
respectively.
Statements of Cash Flows
For purposes of the combined statements of cash flows, the Company
considers all highly liquid investments with a maturity of three months or less
at the time of purchase to be cash equivalents.
NOTE B -- ACQUISITIONS
During 1994 and 1996, the Company acquired franchise operating rights and
certain assets of two and one temporary staffing service businesses,
respectively (See Note H). Each acquisition has been accounted for under the
purchase method of accounting and is included in the combined financial
statements from the date of acquisition.
NOTE C -- EQUIPMENT AND LEASEHOLD IMPROVEMENTS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
Computer hardware and software................. $ 90,766 $ 144,878 $ 152,365
Automobiles.................................... 34,608 88,328 92,893
Leasehold improvements......................... 58,759 84,539 88,908
Furniture and fixtures......................... 111,207 138,128 192,772
--------- --------- ---------
295,340 455,873 526,938
Less accumulated depreciation and
amortization....................... (109,312) (182,519) (245,715)
--------- --------- ---------
$ 186,028 $ 273,354 $ 281,223
========= ========= =========
</TABLE>
NOTE D -- INTANGIBLE ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
-------- -------- -------------
<S> <C> <C> <C>
Goodwill......................................... $212,500 $213,385 $270,885
Covenants not to compete......................... 20,000 20,000 60,000
-------- -------- --------
232,500 233,385 330,885
Less accumulated amortization.......... (9,403) (24,881) (44,338)
-------- -------- --------
$223,097 $208,504 $286,547
======== ======== ========
</TABLE>
F-24
<PAGE> 80
B.A.T. GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1996 AND THE NINE MONTHS THEN ENDED
IS UNAUDITED)
NOTE E -- SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- SEPTEMBER 30,
1994 1995 1996
-------- ---------- -------------
<S> <C> <C> <C>
Bank lines of credit........................... $780,000 $1,099,000 $692,000
Broker loan, collateralized by marketable
securities, with interest at 8.25%........... -- 203,374 221,991
-------- ---------- --------
$780,000 $1,302,374 $913,991
======== ========== ========
</TABLE>
The Company has unused lines of credit aggregating $601,000 at December 31,
1995. Interest is charged on these lines at prime (8.5% at December 31, 1995).
Utilization of the lines of credit is limited to the amount of eligible accounts
receivable, as defined in the loan agreement.
The lines of credit are collateralized by the assets of the Company and by
personal guarantees of the stockholders.
NOTE F -- LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1994 1995 1996
-------- ------- -------------
<S> <C> <C> <C>
Notes payable to banks, payable in installments
through 1998, bearing interest at prime rate.... $ 68,205 $96,426 $ 55,422
Acquisition notes................................. 55,834 -- 122,346
Other............................................. 44,673 -- --
-------- ------- --------
168,712 96,426 177,768
Less current maturities................. 128,444 49,604 91,164
-------- ------- --------
$ 40,268 $46,822 $ 86,604
======== ======= ========
</TABLE>
Aggregate maturities of long-term debt for the years following December 31,
1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
- ------------
<S> <C> <C>
1996........................................................ $49,604
1997........................................................ 46,297
1998........................................................ 525
-------
$96,426
=======
</TABLE>
F-25
<PAGE> 81
B.A.T. GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1996 AND THE NINE MONTHS THEN ENDED
IS UNAUDITED)
NOTE G -- COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office space under noncancellable operating lease
agreements expiring at various dates through 1998. Total rental expense was
approximately $89,000 and $50,000 for the years ended December 31, 1995 and
1994, respectively. The future minimum lease payments under these leases at
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
- ------------
<S> <C> <C>
1996....................................................... $ 92,168
1997....................................................... 50,915
1998....................................................... 25,326
--------
$168,409
========
</TABLE>
NOTE H -- CASH FLOW INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------ SEPTEMBER 30,
1994 1995 1996
---------- ---------- -------------
<S> <C> <C> <C>
Interest paid.................................... $ 64,796 $ 70,138 $ 51,449
======== ======== =========
Purchase of businesses
Fair value of tangible assets acquired......... $ 72,791 $ -- $ 40,000
Goodwill....................................... 212,500 -- 57,500
Covenants not to compete....................... 20,000 -- 40,000
-------- -------- ---------
Total consideration.............................. 305,291 -- 137,500
Less note payable................................ (87,500) -- (137,500)
-------- -------- ---------
Cash paid........................................ $217,791 $ -- $ --
======== ======== =========
Purchase of marketable securities with broker
loan........................................... $ -- $203,374 $ 18,617
======== ======== =========
</TABLE>
NOTE I -- RELATED PARTY TRANSACTIONS
The Company paid a management fee of $136,000 in 1995 to a related party,
B.A.T. Real Estate, Inc.
NOTE J -- COMMON STOCK
Information on common stock, none of which has a par or stated value, is as
follows:
<TABLE>
<CAPTION>
SHARES SHARES ISSUED
AUTHORIZED AND OUTSTANDING AMOUNT
---------- --------------- --------
<S> <C> <C> <C>
B.A.T. Group Holdings, Inc..................... 1,000 1,000 $ 1,000
KAL Help Enterprises, Inc...................... 1,000 1,000 1,000
Par Three Help Services, Inc................... 1,000 100 1,000
Par Four Services, Inc......................... 1,000,000 1,000 105,000
--------
$108,000
========
</TABLE>
F-26
<PAGE> 82
B.A.T. GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1996 AND THE NINE MONTHS THEN ENDED
IS UNAUDITED)
NOTE K -- SUBSEQUENT EVENT
In November 1996, the Company sold its franchise operating rights and
certain tangible assets to the franchisor, Snelling and Snelling, Inc.
F-27
<PAGE> 83
SNELLING AND SNELLING, INC.
PRO FORMA CONDENSED FINANCIAL STATEMENT
(UNAUDITED)
The following unaudited pro forma condensed statement of earnings for the
year ended December 31, 1996 is presented for illustrative purposes only and
gives effect to (i) the acquisition on November 4, 1996 of five franchise
locations in the Chicago area (B.A.T. Group Acquisition) for $11.0 million, (ii)
the acquisition on March 17, 1996 of three franchise locations in the Kansas
city area (Kansas City Acquisition) for $1.5 million as though they had been
made on January 1, 1996 and (iii) the pro forma effect of the use of proceeds
from the sale of shares being offered herein to retire debt.
All of the acquisitions have been accounted for using the purchase method
of accounting. The unaudited pro forma condensed statement of earnings combines
the Company's results of operations for the year ended December 31, 1996 with
the operating results of B.A.T. Group Acquisition for the period from January 1,
1996 through November 3, 1996, and the Kansas City Acquisition for the period
from January 1, 1996 through March 16, 1996. The pro forma statement reflects
pro forma adjustments based upon available information and certain assumptions
the Company believes are reasonable. Because of limitations imposed with regard
to the types of permitted pro forma adjustments, no effect has been given to
anticipated efficiencies in operations which may result. Therefore, the Company
believes that this pro forma condensed statement of earnings is not indicative
of future results of operations nor the historical results of operations had the
acquisitions been consummated on January 1, 1996. These pro forma financial
statements should be read in conjunction with the historical financial
statements and related notes of the Company and B.A.T. Group. Certain businesses
acquired have not been included as they are immaterial to results of operations.
F-28
<PAGE> 84
SNELLING AND SNELLING, INC.
PRO FORMA CONDENSED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
B.A.T. KANSAS PRO FORMA PRO FORMA
GROUP CITY PRO FORMA FOR ADJUSTMENTS
COMPANY ACQUISITION ACQUISITION TOTAL ADJUSTMENTS ACQUISITIONS FOR OFFERING
---------- ----------- ----------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................... $ 168,602 $16,341 $884 $185,827 $(431)(1) $ 185,396 $ --
Cost of services.................. 122,945 12,635 650 136,230 (447)(2) 135,783 --
---------- ------- ---- -------- ----- ---------- --------
Gross profit.............. 45,657 3,706 234 49,597 16 49,613 --
Selling, general and
administrative expenses......... 19,600 2,509 115 22,224 (7)(3) 22,217 --
Franchises' share of gross
profit.......................... 19,587 -- -- 19,587 -- 19,587 --
---------- ------- ---- -------- ----- ---------- --------
Operating profit.......... 6,470 1,197 119 7,786 23 7,809 --
Other income (expense)
Interest expense................ (1,100) (58) -- (1,158) (770)(4) (1,928) 1,419(5)
Other........................... 105 -- -- 105 -- 105 --
---------- ------- ---- -------- ----- ---------- --------
(995) (58) -- (1,053) (770) (1,823) 1,419
---------- ------- ---- -------- ----- ---------- --------
Earnings before income
taxes................... 5,475 1,139 119 6,733 (747) 5,986 1,419
Income tax expense................ 2,161 -- -- 2,161 (202)(6) 2,363 560(6)
---------- ------- ---- -------- ----- ---------- --------
NET EARNINGS.............. $ 3,314 $ 1,139 $119 $ 4,572 $(949) $ 3,623 $ 859
========== ======= ==== ======== ===== ========== ========
Earnings per share................ $ .48 $ .52
========== ==========
Weight average common and common
equivalent shares............... 6,965,843 6,965,843 707,885(5)
========== ========== ========
<CAPTION>
PRO FORMA
----------
<S> <C>
Revenues.......................... $ 185,396
Cost of services.................. 135,783
----------
Gross profit.............. 49,613
Selling, general and
administrative expenses......... 22,217
Franchises' share of gross
profit.......................... 19,587
----------
Operating profit.......... 7,809
Other income (expense)
Interest expense................ (509)
Other........................... 105
----------
(404)
----------
Earnings before income
taxes................... 7,405
Income tax expense................ 2,923
----------
NET EARNINGS.............. $ 4,482
==========
Earnings per share................ $ .58
==========
Weight average common and common
equivalent shares............... 7,673,728
==========
</TABLE>
F-29
<PAGE> 85
SNELLING AND SNELLING, INC.
NOTES TO PRO FORMA CONDENSED STATEMENT OF EARNINGS
(UNAUDITED)
The pro forma adjustments to the accompanying pro forma statement of
earnings are described below:
(1) Eliminations of royalty revenues received from acquired franchise
locations.
(2) Elimination of the acquired franchise locations' cost of services for
royalties paid to the Company and adjustments for reduction in workers'
compensation rates and state unemployment tax rates, as follows (in
thousands):
<TABLE>
<S> <C>
Royalties paid to the Company............................... $431
Reduction in workers' compensation insurance rates.......... 6
Reduction in state unemployment tax rates................... 10
----
$447
====
</TABLE>
(3) Adjustment to compensation expense associated with certain former
executive officers of the franchise locations acquired who were not
employed by the Company after acquisition and amortization of the
assets acquired in the B.A.T. Group and Kansas City Acquisitions as
follows (in thousands):
<TABLE>
<S> <C>
Compensation expense........................................ $(174)
Amortization -- B.A.T. Group Acquisition.................... 155
Amortization -- Kansas City Acquisition..................... 12
-----
$ (7)
=====
</TABLE>
(4) Adjustment for interest expense on borrowings of $11.0 million and $1.5
million incurred in connection with the B.A.T. Group and Kansas City
Acquisitions, respectively, and to eliminate interest expense of the
B.A.T. Group Acquisition.
(5) Adjustment to reflect shares being offered to retire debt with an
average balance of $7,900,000 during the year ended December 31, 1996,
and the elimination of the related interest expense along with the pro
forma interest expense of $770,000 of acquisition debt, net of tax, as
though the debt were retired at the beginning of the year.
(6) Tax effects of pro forma adjustments and provision for income taxes,
using the Company's effective tax rate, on the earnings of B.A.T. Group
and the Kansas City Acquisitions, which had S Corporation status for
federal income tax purposes.
F-30
<PAGE> 86
[GRAPHICS]
The inside back cover of the Prospectus includes the caption "Over 300
Locations Serving the U.S." in the upper right corner, a photograph of the
Snelling office in Quincy, Illinois (with a caption to that effect) in the upper
half of the page, a map of the United States with stylized diamond shapes placed
to represent Snelling locations in the lower half of the page (along with the
caption "299 Snelling Locations as of June 30, 1997"), a photograph of a
Snelling office in Dallas, Texas (with a caption to that effect) in the lower
left corner and the Snelling(R) Personnel Services logo in the lower right
corner.
<PAGE> 87
======================================================
NO DEALER, SALESPERSON OR ANY 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 REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR
DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE
SHARES OF COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................
Risk Factors..........................
The Company...........................
Use of Proceeds.......................
Dividend Policy.......................
Capitalization........................
Dilution..............................
Selected Consolidated Financial and
Operating Data......................
Management's Discussion and Analysis
of Financial Condition and Results
of Operations.......................
Business..............................
Management............................
Certain Relationships and Related
Transactions........................
Principal and Selling Shareholders....
Description of Capital Stock..........
Shares Eligible for Future Sale.......
Underwriting..........................
Legal Matters.........................
Experts...............................
Additional Information................
Index to Consolidated Financial
Statements..........................
</TABLE>
---------------------
UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION
OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
5,000,000 SHARES
[SNELLING LOGO]
COMMON STOCK
---------------------
PROSPECTUS
, 1997
---------------------
SMITH BARNEY INC.
RAUSCHER PIERCE REFSNES, INC.
======================================================
<PAGE> 88
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by the Company in connection with this
offering are as follows:
<TABLE>
<S> <C>
SEC registration fee........................................ $22,652
NASD fee.................................................... 7,475
-------
Nasdaq National Market listing fee.......................... 31,875
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Printing expenses........................................... *
Blue Sky fees and expenses (including legal fees)........... *
Transfer agent's and registrar's fees....................... *
Miscellaneous other expenses................................ *
-------
Total............................................. *
=======
</TABLE>
- ---------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 1741, 1742 and 1743 of the Pennsylvania Business Corporation Law
provide that a Pennsylvania corporation may indemnify any person against
expenses (including attorneys fees), judgments, fines and settlements actually
and reasonably incurred by any such person in connection with a threatened,
pending or completed action, suit or proceeding in which he is involved by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, provided that (i) he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and (ii) with respect to any criminal action or proceeding, he had
no reasonable cause to believe his conduct was unlawful. If the action or suit
is by or in the name of the corporation, the corporation may indemnify any such
person against expenses actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interest of the corporation, except that no indemnification may be made in
respect to any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation, unless and only to the extent that the
district court of common pleas or the court in which the action or suit is
brought determines upon application that, despite the adjudication of liability
but in light of the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses as the court deems proper. To
the extent that such a person has been successful on the merits or otherwise in
defense of any such action or proceeding, the person shall be indemnified
against expenses actually and reasonably incurred in connection therewith.
The Bylaws provide that the Company is generally required to indemnify its
directors and officers for all judgments, fines, settlements, legal fees and
other expenses incurred in connection with pending or threatened legal
proceedings because of the director's or officer's position with the Company or
another entity that the director or officer serves at the Company's request,
subject to certain conditions, and to advance funds to its directors and
officers to enable them to defend against such proceedings upon receipt of any
undertaking by or on behalf of the director or officer to repay the amount if it
is ultimately determined that he is not entitled to be indemnified by the
Company as authorized by the Pennsylvania Business Corporation Law or otherwise.
Conditions that bar indemnification against liabilities arising from conduct
include (i) where the conduct of the indemnified director or officer has been
determined to constitute willful misconduct or recklessness under the
Pennsylvania Business Corporation Law or any superseding provision of law and
(ii) self-dealing, which means the receipt of personal benefit from the
corporation to which the authorized director or officer is not legally entitled.
To receive indemnification, the director or officer must have been successful in
the legal
II-1
<PAGE> 89
proceeding or acted in good faith and in what was reasonably believed to be a
lawful manner and in the Company's best interest. See "Description of Capital
Stock -- Certain Provisions of the Charter and Bylaws."
In addition, the Charter limits the liability of directors to the extent
allowed by the Pennsylvania Business Corporation Law. Specifically, directors
will not be held personally liable to the Company or its shareholders for
monetary damages for any action taken, or any failure to take any action, in
their capacity as a director, unless (i) the director has breached or failed to
perform the duties of the director's office under the Charter, By-Laws or
applicable provisions of law and (ii) the breach or failure to perform
constitutes self-dealing, willful misconduct or recklessness. The limitations on
liability do not apply to the responsibility or liability of a director pursuant
to any criminal statute or for the payment of taxes pursuant to federal, state
or local law. See "Description of Capital Stock -- Certain Provisions of the
Charter and Bylaws."
Section 1747 of the Pennsylvania Business Corporation Law allows the
Company to purchase and maintain insurance on behalf of its directors and
officers against liabilities that may be asserted against, or incurred by, the
directors and officers in any such capacity, whether the Company would have the
authority to indemnify the directors and officers against liability under the
provisions of Sections 1741, 1742 and 1743. The Company maintains a directors'
and officers' liability policy for this purpose.
The Underwriting Agreement filed as Exhibit 1.1 hereto contains reciprocal
agreements of indemnity between the registrant and the Underwriters as to
certain liabilities, including liabilities under the Securities Act and in
certain circumstances provides for indemnification of the registrant's directors
and officers.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers or persons controlling the Company as described
above, the Company has been informed that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
therefore is unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On December 2, 1996, the Company granted options to purchase an aggregate
of 3,519,984 shares of Class B Common Stock to certain of its executive officers
pursuant to the 1996 Stock Option Plan. See "Management -- Stock Option Plans.
The options were granted pursuant to private transactions, and the grants were
exempt from the registration provisions of the Securities Act pursuant to
Section 4(2) for transactions not involving any public offering and Rule 701 for
offers and sales to employees, directors or officers pursuant to written
compensatory benefit plans or written contracts relating to the compensation of
such persons.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*1.1 -- Form of Underwriting Agreement
*3.1 -- Form of Second Amended and Restated Articles of
Incorporation
*3.2 -- Form of amended and restated Bylaws
*4.1 -- Form of certificate representing shares of Common Stock
*5.1 -- Legal Opinion of Gardere & Wynne, L.L.P., regarding
legality of securities being registered
10.1 -- Employment Agreement, effective as of October 2, 1997, by
and between the Company and Robert O. Snelling, Sr.
10.2 -- Employment Agreement, effective as of July 26, 1994, by
and between the Company and Timothy J. Loncharich
</TABLE>
II-2
<PAGE> 90
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.3 -- Snelling and Snelling, Inc. Long Term Incentive
Performance Bonus Plan for Timothy J. Loncharich,
effective as of July 26, 1994
10.4 -- Amendment Number One to the Employment Agreement between
the Company and Timothy J. Loncharich, effective as of
August 1, 1994
10.5 -- Amendment Number Two to the Employment Agreement between
the Company and Timothy J. Loncharich, effective as of
November 1, 1996
10.6 -- Termination Agreement, effective as of November 1, 1996,
by and between the Company and Timothy J. Loncharich
(relating to Long Term Incentive Performance Bonus Plan)
10.7 -- Amendment Number Three to the Employment Agreement
between the Company and Timothy J. Loncharich, effective
as of October 2, 1997.
10.8 -- Employment Agreement, effective as of December 1, 1996,
by and between the Company and Robert O. Snelling, Jr.
10.9 -- Employment Agreement, effective as of December 1, 1996,
by and between the Company and J. Russell Crews
*10.10 -- Snelling and Snelling, Inc. 1997 Stock Option Plan,
including form of Incentive Stock Option Agreement and
Nonqualified Stock Option Agreement
*10.11 -- Snelling and Snelling, Inc. 1996 Stock Option Plan,
including form of Incentive Stock Option Agreement and
Nonqualified Stock Option Agreement
*10.12 -- Snelling and Snelling, Inc. Non-Employee Director Stock
Option Plan, including form of Nonqualified Stock Option
Agreement
10.13 -- Credit Agreement, dated as of January 31, 1996, among the
Company, as Borrower, and The First National Bank of
Boston, individually and as Agent, and the lenders named
therein
10.14 -- Security Agreement, dated as of January 31, 1996, by and
between the Company and The First National Bank of
Boston, as agent
10.15 -- Copyright Security Agreement dated as of January 31,
1996, by and between the Company and The First National
Bank of Boston, as agent
10.16 -- Trademark Security Agreement dated as of January 31,
1996, by and between the Company and The First National
Bank of Boston, as agent
10.17 -- Borrower Pledge Agreement dated as of January 31, 1996,
by and between the Company and The First National Bank of
Boston, as agent
10.18 -- Amendment to Credit Agreement, dated as of August 22,
1996, by and between the Company, Advance, Plant
Maintenance, Inc., Robert O. Snelling, Sr., and Anne M.
Snelling and The First National Bank of Boston,
individually and as agent, and the lenders named therein
10.19 -- Second Amendment to Credit Agreement, dated as of July
25, 1997, by and between the Company, Advance, Robert O.
Snelling, Sr., Anne M. Snelling and Arimathea and
BankBoston, N.A., individually and as agent, and the
lenders named therein
</TABLE>
II-3
<PAGE> 91
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.20 -- Form of Franchise Agreement
*10.21 -- Asset Purchase Agreement dated as of October 16, 1996,
between B.A.T. Holdings, Inc., and Brett S. Hardt and
Jeff Albrecht and the Company
10.22 -- Asset Purchase Agreement dated as of October 16, 1996,
between KAL Help Enterprises, Inc., and Brett S. Hardt
and Jeff Albrecht and the Company
10.23 -- Asset Purchase Agreement dated as of October 16, 1996,
between Par Three Help Services, Inc., and Brett S. Hardt
and Jeff Albrecht and the Company
10.24 -- Asset Purchase Agreement dated as of October 16, 1996,
between Par Four Services, Inc., and Brett Hardt, Jeff
Albrecht and Scott Wells and the Company
10.25 -- Asset Purchase Agreement dated as of October 16, 1996,
between Par Five Services, Inc., and Brett S. Hardt, Jeff
Albrecht and Lila Petrovich and the Company
10.26 -- Asset Purchase Agreement dated as of September , 1997,
Cross Temps, Inc. and Cross Personnel Agency, Inc. and
James A. Zamparelli, Maria Zamparelli, Michael Monda and
John Costa and the Company
11.1 -- Statement regarding computation of per share data
21.1 -- List of subsidiaries
23.1 -- Consent of Grant Thornton LLP
*23.2 -- Consent of Gardere & Wynne, L.L.P. (included in Exhibit
5.1)
24.1 -- Power of Attorney (set forth on page II-6)
27.1 -- Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment
(b) Financial Statement Schedules
The following financial statement schedules are included in Part II of the
registration statement:
Schedule II -- Valuation and Qualifying Accounts for the year ended May 31,
1994, the seven months ended December 31, 1994, and the
years ended December 31, 1995 and 1996.
All other schedules are omitted because they are inapplicable or the
requested information is shown in the financial statements or noted therein.
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act 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 Commission such indemnification is
against public policy as expressed in the Securities 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.
II-4
<PAGE> 92
(b) The undersigned registrant hereby undertakes to provide to the
representatives of the underwriters at the closing specified in the Underwriting
Agreement certificates in such denominations and registered in such names as
required by the representatives of the underwriters to permit prompt delivery to
each purchaser.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, 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 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, 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 the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 93
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas and State of Texas
on the 15th day of October, 1997.
SNELLING AND SNELLING, INC.
By: /s/ TIMOTHY J. LONCHARICH
----------------------------------
Timothy J. Loncharich
President and Chief Operating
Officer
POWER OF ATTORNEY
Each of the undersigned hereby appoints Timothy J. Loncharich and J.
Russell Crews and each of them (with full power to act alone) as attorneys and
agents for the undersigned, with full power of substitution, for and in the
name, place and stead of the undersigned, to sign and file with the Commission
under the Securities Act any and all amendments and exhibits to this
registration statement and any and all applications, instruments and other
documents to be filed with the Commission pertaining to the registration of the
securities covered hereby, with full power and authority to do and perform any
and all acts and things whatsoever requisite or desirable.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed below by the following persons and in the capacities
indicated on the 15th day of October, 1997.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<C> <S>
/s/ ROBERT O. SNELLING, SR. Director, Chairman of the Board and Chief
- ----------------------------------------------------- Executive Officer (principal executive
Robert O. Snelling, Sr. officer)
/s/ TIMOTHY J. LONCHARICH Director, President and Chief Operating
- ----------------------------------------------------- Officer
Timothy J. Loncharich
/s/ J. RUSSELL CREWS Director, Senior Vice President, Chief
- ----------------------------------------------------- Financial Officer and Treasurer (principal
J. Russell Crews financial and accounting officer)
/s/ ROBERT O. SNELLING, JR. Director, Vice Chairman, Senior Vice
- ----------------------------------------------------- President and Chief Information Officer
Robert O. Snelling, Jr.
</TABLE>
II-6
<PAGE> 94
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Snelling and Snelling, Inc.
In connection with our audit of the consolidated financial statements of
Snelling and Snelling, Inc. referred to in our report dated April 25, 1997,
which is included in the Prospectus constituting Part I of this Registration
Statement, we have also audited Schedule II for the periods set forth in Item
16. In our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
GRANT THORNTON LLP
Dallas, Texas
April 25, 1997
S-1
<PAGE> 95
SNELLING AND SNELLING, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B - COLUMN C - COLUMN D - COLUMN E -
-------- ------------ ---------- ---------- ----------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF BAD DEBT END OF
ALLOWANCE FOR DOUBTFUL ACCOUNTS PERIOD EXPENSE DEDUCTIONS(1) PERIOD
------------------------------- ------------ ---------- ------------- ----------
<S> <C> <C> <C> <C>
Year ended May 31, 1994...................... $532 $375 $160 $747
Seven months ended December 31, 1994......... 747 68 637 178
Year ended December 31, 1995................. 178 74 51 201
Year ended December 31, 1996................. 201 226 78 349
</TABLE>
- ---------------
(1) Accounts charged off, net of recoveries.
S-2
<PAGE> 96
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*1.1 -- Form of Underwriting Agreement
*3.1 -- Form of Second Amended and Restated Articles of
Incorporation
*3.2 -- Form of amended and restated Bylaws
*4.1 -- Form of certificate representing shares of Common Stock
*5.1 -- Legal Opinion of Gardere & Wynne, L.L.P., regarding
legality of securities being registered
10.1 -- Employment Agreement, effective as of October 2, 1997, by
and between the Company and Robert O. Snelling, Sr.
10.2 -- Employment Agreement, effective as of July 26, 1994, by
and between the Company and Timothy J. Loncharich
10.3 -- Snelling and Snelling, Inc. Long Term Incentive
Performance Bonus Plan for Timothy J. Loncharich,
effective as of July 26, 1994
10.4 -- Amendment Number One to the Employment Agreement between
the Company and Timothy J. Loncharich, effective as of
August 1, 1994
10.5 -- Amendment Number Two to the Employment Agreement between
the Company and Timothy J. Loncharich, effective as of
November 1, 1996
10.6 -- Termination Agreement, effective as of November 1, 1996,
by and between the Company and Timothy J. Loncharich
(relating to Long Term Incentive Performance Bonus Plan)
10.7 -- Amendment Number Three to the Employment Agreement
between the Company and Timothy J. Loncharich, effective
as of October 2, 1997.
10.8 -- Employment Agreement, effective as of December 1, 1996,
by and between the Company and Robert O. Snelling, Jr.
10.9 -- Employment Agreement, effective as of December 1, 1996,
by and between the Company and J. Russell Crews
*10.10 -- Snelling and Snelling, Inc. 1997 Stock Option Plan,
including form of Incentive Stock Option Agreement and
Nonqualified Stock Option Agreement
*10.11 -- Snelling and Snelling, Inc. 1996 Stock Option Plan,
including form of Incentive Stock Option Agreement and
Nonqualified Stock Option Agreement
*10.12 -- Snelling and Snelling, Inc. Non-Employee Director Stock
Option Plan, including form of Nonqualified Stock Option
Agreement
10.13 -- Credit Agreement, dated as of January 31, 1996, among the
Company, as Borrower, and The First National Bank of
Boston, individually and as Agent, and the lenders named
therein
10.14 -- Security Agreement, dated as of January 31, 1996, by and
between the Company and The First National Bank of
Boston, as agent
10.15 -- Copyright Security Agreement dated as of January 31,
1996, by and between the Company and The First National
Bank of Boston, as agent
10.16 -- Trademark Security Agreement dated as of January 31,
1996, by and between the Company and The First National
Bank of Boston, as agent
10.17 -- Borrower Pledge Agreement dated as of January 31, 1996,
by and between the Company and The First National Bank of
Boston, as agent
</TABLE>
<PAGE> 97
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.18 -- Amendment to Credit Agreement, dated as of August 22,
1996, by and between the Company, Advance, Plant
Maintenance, Inc., Robert O. Snelling, Sr., and Anne M.
Snelling and The First National Bank of Boston,
individually and as agent, and the lenders named therein
10.19 -- Second Amendment to Credit Agreement, dated as of July
25, 1997, by and between the Company, Advance, Robert O.
Snelling, Sr., Anne M. Snelling and Arimathea and
BankBoston, N.A., individually and as agent, and the
lenders named therein
10.20 -- Form of Franchise Agreement
*10.21 -- Asset Purchase Agreement dated as of October 16, 1996,
between B.A.T. Holdings, Inc., and Brett S. Hardt and
Jeff Albrecht and the Company
10.22 -- Asset Purchase Agreement dated as of October 16, 1996,
between KAL Help Enterprises, Inc., and Brett S. Hardt
and Jeff Albrecht and the Company
10.23 -- Asset Purchase Agreement dated as of October 16, 1996,
between Par Three Help Services, Inc., and Brett S. Hardt
and Jeff Albrecht and the Company
10.24 -- Asset Purchase Agreement dated as of October 16, 1996,
between Par Four Services, Inc., and Brett Hardt, Jeff
Albrecht and Scott Wells and the Company
10.25 -- Asset Purchase Agreement dated as of October 16, 1996,
between Par Five Services, Inc., and Brett S. Hardt, Jeff
Albrecht and Lila Petrovich and the Company
10.26 -- Asset Purchase Agreement dated as of September , 1997,
Cross Temps, Inc. and Cross Personnel Agency, Inc. and
James A. Zamparelli, Maria Zamparelli, Michael Monda and
John Costa and the Company
11.1 -- Statement regarding computation of per share data
21.1 -- List of subsidiaries
23.1 -- Consent of Grant Thornton LLP
*23.2 -- Consent of Gardere & Wynne, L.L.P. (included in Exhibit
5.1)
24.1 -- Power of Attorney (set forth on page II-6)
27.1 -- Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
BETWEEN
SNELLING AND SNELLING, INC.
AND
ROBERT O. SNELLING, SR.
EFFECTIVE: OCTOBER 2, 1997
<PAGE> 2
EMPLOYMENT AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Duties and Functions as Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
A. Positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
B. General Duties and Functions as Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
C. Access to Informational Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. Extent of Employee Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. Satisfaction of Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
5. Employee Compensation, Employee Retirement and Deferred Compensation, and Surviving Spouse Benefits . . . . 2
A. Employment Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
B. Deferred Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
C. Surviving Spouse Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
D. Office at the Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
E. Alternative Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
F. Home Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
G. Secretarial Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
H. Automobile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
I. Sabbaticals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
J. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
K. Stock Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6. Employee Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
A. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
B. Non-Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
C. Non-Interference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
D. Disclosure of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
E. Return of Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
F. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C> <C>
8. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
A. Death . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
B. Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
C. Mutual Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
D. By Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
E. For "Good Cause" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
F. October 2, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
9. Payments upon Termination; Severance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
A. Death . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
B. Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
C. Mutual Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
D. By Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
E. For Good Cause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
F. Expiration of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
G. Additional Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
H. Rights of Employee in the Event of a Change of Control . . . . . . . . . . . . . . . . . . . . . . . 12
10. References and Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
11. Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
12. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
13. Insurance; Medical Exam . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
14. Invalid Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
15. Nonassignability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
16. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
17. Laws Governing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
18. Succession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
19. Arbitration; Legal Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
A. Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
B. Legal Fees and Expenses in Event of Dispute . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
20. Waivers and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
21. Multiple Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
- ii -
<PAGE> 4
EMPLOYMENT AGREEMENT
This Executive, Employment, Retirement, and Deferred Compensation
Agreement (the "Agreement") is entered into by and between Snelling and
Snelling, Inc., a Pennsylvania corporation (the "Corporation" or "Employer"),
including any and all subsidiaries thereof or controlled entity, and Robert O.
Snelling, Sr. (the "Employee") as of the 2nd day of October, 1997.
R E C I T A L S:
The Employee has served and led the Corporation for more than
forty-four years; and
The Employee has forgone opportunities to recognize substantial gain
upon his contributions to the Corporation over the years in a desire to best
serve and enhance the value of the Corporation for all of its constituents, and
particularly, for the benefit of its shareholders; and
The Employee has been compensated by the Corporation over the years at
amounts appreciably less than would have been justified by the contributions
and leadership of the Employee; and
The Corporation and the Employee desire to enter into this Agreement
to set forth the role, rights and executive compensation, retirement and
deferred compensation benefits to be afforded to the Employee by the
Corporation throughout his lifetime and for the benefit of his surviving
spouse.
AGREEMENT
1. EMPLOYMENT. The Employer hereby employs Employee and Employee
hereby accepts such employment upon the terms and conditions of this Agreement.
2. DUTIES AND FUNCTIONS AS EMPLOYEE. Employee is engaged by the
Employer to perform the following duties and functions:
A. POSITIONS. For so long as the Employee so desires
and is capable (with the issue of capability, if questioned at any time, to be
determined pursuant to Section 8B), for a period of fifteen (15) years from the
date hereof, the Employee will be afforded the title and position of Chief
Executive Officer. At such times as Employee serves on the Board of Directors
of the Corporation, he also will be afforded the title and position of Chairman
of the Board of Directors.
B. GENERAL DUTIES AND FUNCTIONS AS EMPLOYEE. For so
long as he holds the title and position of Chief Executive Officer, it will be
the role of Employee to guide the policies and the
EMPLOYMENT AGREEMENT - 1 -
<PAGE> 5
direction of the Corporation and to serve such functions as are customary and
appropriate for the Chief Executive Officer of the Corporation.
C. ACCESS TO INFORMATIONAL REPORTS. For so long as
Employee holds the title and position of Chief Executive Officer the Employee
will be afforded access to any and all information of the Corporation, and the
employees of the Corporation will be instructed to furnish such information to
the Employee as the highest of priorities. The Corporation will prepare and
furnish to the Employee any and all reports that the Employee might request.
3. EXTENT OF EMPLOYEE SERVICES. Commensurate with his seniority
and special status, Employee shall devote reasonable time, attention, efforts,
and energies to the business and affairs of the Employer and its affiliated
companies as Chief Executive Officer of the Corporation. Employee during the
term of this Agreement shall not engage in any other business activity similar
to the Employer's business without the Employer's consent, whether or not that
business activity is pursued for gain, profit, or other pecuniary advantages,
nor shall Employee be interested, directly or indirectly, in any form, fashion,
or manner, as partner, officer, director, stockholders advisor, employee,
investor, or in any other form or capacity in such other business; provided,
however, that nothing herein contained shall be deemed to prevent or limit the
right of Employee to invest any of his personal funds in securities of any
corporation whose securities are regularly traded on any public exchange or
regulated market of which Employee, after any such investment, owns less than
five percent (5%) of any class of such corporation's outstanding securities.
Notwithstanding the foregoing, Employee may, with the permission of the Board,
sit on the boards of corporations (public and private) and devote time and
attention to nonprofit organizations and academic institutions, provided such
activities shall be consistent with Employee's commitments to the Employer and
not affect Employee's performance of Employee's obligations under this
Agreement.
4. SATISFACTION OF EMPLOYER. Employee agrees that he will
faithfully, promptly, and to the best of his ability, experience, and talent,
perform all of the duties that may be required of and from him pursuant to the
express and implicit terms hereof.
5. EMPLOYEE COMPENSATION, EMPLOYEE RETIREMENT AND DEFERRED
COMPENSATION, AND SURVIVING SPOUSE BENEFITS. For all services rendered by
Employee for his prior services and during his employment hereunder, the
Employer shall compensate Employee as follows:
A. EMPLOYMENT COMPENSATION. For so long as the
Employee's employment with the Corporation is being substantially full time for
relevant Internal Revenue Code determination purposes, Employee will be
entitled to receive annual compensation of $475,000, adjusted as hereafter
described, to be paid in accordance with the regular payment practices of the
Corporation for executives of the Corporation. The amount of compensation will
be increased each year on the 1st of October, or at such earlier time annually
as determined by the Board of Directors, in the discretion of the Board of
Directors, provided that in no event will such increase be less than a multiple
of two times any change in the Consumer Price Index from the preceding year.
EMPLOYMENT AGREEMENT - 2 -
<PAGE> 6
B. DEFERRED COMPENSATION. After the expiration of
fifteen (15) years from the date hereof, for a period of five (5) years
thereafter, or, if Employee's employment with the Corporation is terminated
for any reason or if the number of hours Employee regularly devotes to the
business of the Corporation is reduced to substantially less than full time,
then Employee, commencing in such month, will be entitled to receive, for the
balance of such fifteen (15) year period plus five (5) years thereafter, annual
compensation of seventy-five percent (75%) of $475,000 or such greater amount
as Employee may be receiving as compensation pursuant to Section 5A at the time
the provisions of this Section 5B become applicable, adjusted as hereafter
described. Such annual compensation will be prorated for any partial year and
will be payable in equal monthly payments. The amount of compensation will be
adjusted each year on the 1st of October, or at such earlier time annually as
determined by the Board of Directors, in the discretion of the Board of
Directors, provided that in no event will such increase be less than a multiple
of two times any change in the Consumer Price Index from the preceding year.
C. SURVIVING SPOUSE BENEFITS. Upon Employee's death,
the Corporation will pay to Employee's surviving spouse, if applicable, an
annual death benefit for the remainder of her life equal to two-thirds of the
amount of Deferred Compensation to which Employee would be entitled if he were
then living.
D. OFFICE AT THE CORPORATION. Upon the request of the
Employee from time to time, the Corporation will afford to the Employee an
office at the headquarters of the Corporation, which is appropriate for the
status and role of the Employee and reasonably acceptable to such Employee and
the Corporation.
E. ALTERNATIVE OFFICE. If Employee does not select
an office at the Corporation's headquarters, then, upon the request of Employee
at any time, the Corporation will afford the Employee with an office outside of
the headquarters of the Corporation of the Employee's choosing and which is
reasonably acceptable to such Employee and the Corporation. Such office will
be equipped with and afforded all appropriate and modern equipment to permit
the Execute to fulfill his role with the Corporation, including expressly
on-line electronic access to the files, records, internal and external
communications, and other information of the Corporation.
F. HOME OFFICE. Upon the request of the Employee at any
time, the Corporation will equip and furnish a home office for the Employee's
use and fulfillment of his role with the Corporation which is reasonably
acceptable by Employee and the Corporation. Such home office will be equipped
with all modern facilities and equipment appropriate to permit the Employee to
fulfill his role, including expressly on-line electronic access to the files,
records, internal and external communications, and other information of the
Corporation.
G. SECRETARIAL SUPPORT. The Corporation will afford
secretarial assistance to the Employee at any office or offices maintained by
the Employee, with the nature and extent of such
EMPLOYMENT AGREEMENT - 3 -
<PAGE> 7
assistance to be determined by the Employee in his reasonable discretion and
reasonably acceptable to the Corporation.
H. AUTOMOBILE. The Corporation will provide an
automobile of Employee's choice, to be replaced by the Corporation every two
years or less at the reasonable discretion of Employee, for use by the Employee
throughout the lifetime of the Employee and also will furnish a driver if
requested by Employee.
I. SABBATICALS.
(1) EARNED SABBATICALS. The Corporation
acknowledges that the Employee has earned the right to
sabbaticals and will be afforded sabbaticals as the Employee
and the Corporation may deem appropriate, being mindful of his
responsibilities as Chief Executive Officer, from time to
time.
(2) PLANNED SABBATICAL. The Corporation
acknowledges that the Employee has planned, and contemplates
taking, a sabbatical of one year in length, at a time of his
choosing.
(3) RIGHTS AND OBLIGATIONS DURING SABBATICAL.
While Employee will be relieved of any specific
responsibilities during a sabbatical, the Employee will
maintain each and every of the rights afforded to the Employee
throughout any sabbatical the Employee may take.
J. INSURANCE. Throughout the lifetime of the Employee,
to the extent procurable, the Corporation will afford and maintain for the
benefit of the Employee full health, disability and life insurance, as well as
general liability, errors and omissions, officers and directors, and umbrella
insurance, and the Corporation will expressly list the Employee as an insured
or co-insured whenever it would be beneficial to the Employee to do so,
provided that such a listing would not be applicable for general liability
insurance. Such insurance, to the extent procurable, will in no event be less
attractive or complete for the Employee than that currently maintained by the
Corporation, and, further, will in no event be less attractive or complete for
the Employee than that insurance maintained or procured for any employee of the
Corporation from time to time.
K. STOCK REGISTRATION RIGHTS.
(1) ONE DEMAND REGISTRATION RIGHTS. During the
lifetime of Employee, the Employee will be afforded one demand
registration right at the expense of the Corporation, provided
that the Corporation may delay any such registration for a
period of up to 180 days if such is deemed necessary by the
Corporation to protect the best interests of the Corporation.
The Corporation acknowledges that affording such demand
registration right to the Employee is reasonable and
appropriate under
EMPLOYMENT AGREEMENT - 4 -
<PAGE> 8
the circumstances for the Corporation and the Employer in
light of the longstanding and invaluable contributions of the
Employee, the forbearance of the Employee from prior
opportunities to liquidate his investment in the Corporation
in prior periods out of a desire to benefit the shareholders
of the Corporation, and the resulting need of the Employee to
have access to the public markets for his investments in the
Corporation with the full cooperation of the Corporation, and
at the expense of the Corporation, during his lifetime.
(2) TWO PIGGYBACK REGISTRATION RIGHTS. During
the lifetime of Employee, whenever the Corporation
contemplates a public offering of its securities, the
Corporation will advise the Employee of its plans to register
securities and will afford the Employee an opportunity
(subject to the advice of underwriters for such registration
as to the practicality of including selling shareholder shares
and marketable amounts thereof) to register shares owned by
the Employee as part of such registration statement, all at
the sole expense of the Corporation, provided that the
Employee may exercise such right no more than two times.
6. EMPLOYEE COVENANTS.
A. CONFIDENTIALITY
(1) PROPRIETARY INFORMATION. Employee is aware
and acknowledges that through his efforts and
with his help and guidance, Employer has
developed a special competence in its
Business (hereinafter defined) and has
accumulated Confidential Information
(hereinafter defined) not generally known to
others in the field which is of unique value
in the conduct and growth of Employer's
Business and which Employer treats as
proprietary.
(2) ACCESS TO CONFIDENTIAL INFORMATION. In the
course of Employee's employment, Employee has
been and will be employed in a position or
positions with Employer in which Employee may
receive or contribute to the Confidential
Information of Employer. Employee recognizes
the optimum progress of Employer's Business
cannot take place unless Confidential
Information is entrusted to Employee.
(3) PROTECTION OF GOODWILL. Employee
acknowledges that in the course of carrying
out, performing, and fulfilling his
responsibilities to Employer, Employee has
and will have access to and be entrusted with
Confidential Information relating to
Employer's Business and Clients (hereinafter
defined). Employee recognizes that (i) the
goodwill of Employer depends upon, among
other things, its keeping
EMPLOYMENT AGREEMENT - 5 -
<PAGE> 9
the Confidential Information confidential
and that unauthorized disclosure of the
Confidential Information would irreparably
damage Employer, and (ii) disclosure of any
Confidential Information to competitors of
Employer or to the general public would be
highly detrimental to Employer. Employee
further acknowledges that in the course of
performing his obligations to Employer, he may
be a representative of Employer to many of
Employer's Clients and in some instances
Employer's primary contact with the Client,
and as such will be responsible for
maintaining or enhancing the business and
goodwill of Employer with those Clients.
(4) MEANINGS OF TERMS. Employee acknowledges
that the following terms shall have the
following meanings:
a. BUSINESS shall mean Employer's
present business of providing
personnel services, including but
not limited to, temporary help
services, employee placement,
employee search, employee leasing,
and as such business may be expanded
and diversified in the future
through acquisitions by Employer or
future development or
diversification, including any
business which Employer has targeted
or discussed to be targeted by
officers or board members for
acquisition or entry during the
Restricted Period (as defined
below).
b. EMPLOYER shall refer to Snelling and
Snelling, Inc. d/b/a Snelling
Personnel Services and shall also be
deemed to include any other business
or entity in which Employer has or
acquires an equity interest.
c. CLIENTS means any individual,
principal, proprietorship,
partnership, corporation,
association, or other entity that
has been served by Employer as a
customer or franchisee during the
term of Employee's employment,
including those who were (or became)
Client(s) of Employer at the time of
(or at any time during) Employee's
employment.
d. COMPETING BUSINESS means any
business, firm, undertaking,
company, or organization, other than
Employer, which competes in any
state in the United States in which
the Employer's business is located
(the "Restricted Area") with
Employer's Business.
EMPLOYMENT AGREEMENT - 6 -
<PAGE> 10
e. CONFIDENTIAL INFORMATION means
information disclosed or known to
Employee as a direct or indirect
consequence of, or through his
employment with Employer, about
Employer's business methods,
operations, and services, including,
but not limited to, all information,
written or oral, including without
limitation, manuals, videos, audios,
and internal publications not
generally known, or proprietary to
Employer, about Employer's training,
marketing, pricing, accounting,
merchandising, and information
gathering techniques and methods,
and all accumulated data, listings,
or similar recorded matter used or
useful in Employer's Business,
including but not limited to,
Employer's Client lists, Employer's
franchisees' Client lists, reports,
business forms, advertisements, and
marketing reports and presentation
materials. Without regard to
whether any or all of the foregoing
matters would be deemed
confidential, material, or
important, the parties hereto
stipulate that as between them, the
same are important, material, and
confidential and gravely affect the
effective and successful conduct of
the business of the Employer, and
its goodwill.
B. NON-COMPETITION. Employee agrees that during his
employment with Employer, Employee shall not within the Restricted Area, either
through any kind of ownership (other than ownership of securities any
corporation whose securities are regularly traded on any public exchange or
regulated market of which Employee owns less than five percent (5%) of any
class of such corporation's outstanding securities), or as a director, officer,
principal, agent, employee, employer, advisor, consultant, co-partner, or in
any individual or representative capacity whatsoever, either for Employee's own
benefit or for the benefit of any other person or firm, partnership,
association, corporation, or other entity, without the prior written consent of
Employer, participate, directly or indirectly, in a Competing Business
involving any Client.
C. NON-INTERFERENCE. During his employment with the
Employer and for a period of thirty-six (36) months after the termination of
his employment irrespective of the time, manner, or cause of his termination,
Employee shall not:
(1) SOLICITATION. Directly or indirectly, either
as principal, agent, employee, employer,
stockholder, co-partner, or in any other
individual or representative capacity
whatsoever induce, solicit, or attempt to
induce or solicit any Client or induce,
solicit or attempt to induce or solicit any
Client to terminate its relationship with
Employer, either for Employee's own benefit
or for the benefit of any
EMPLOYMENT AGREEMENT - 7 -
<PAGE> 11
other person, firm, or corporation
competitive with that of the Employer.
(2) SOURCES. Directly or indirectly, request or
advise any present or future merchandise
resource, supply resource, financial
resource, or service resource of the employer
or any Client to withdraw, curtail, or cancel
the furnishing or sales of merchandise,
supplies, or services to the Employer or any
Client.
(3) EMPLOYEES. Directly or indirectly, induce or
attempt to influence any employee of the
Employer or employee of any Client to
terminate employment with the Employer or the
client, as the case may be, or hire any
former employee of the Employer who has
resigned.
D. DISCLOSURE OF INFORMATION. Unless compelled to
disclose information in a legal proceeding, Employee expressly covenants and
agrees that he will not, during or after the termination of his employment with
the Employer, irrespective of the time, manner or cause of the termination,
directly or indirectly use, disclose, copy, or assist any other person or firm
in the use, disclosure, or copying of, any Confidential Information, except
with the written consent of or at the written request of Employer.
E. RETURN OF RECORDS. Upon termination of his
employment, Employee will surrender to the Employer all lists, books, and
records of or in connection with the Employer's Clients, customers, suppliers,
prospective customers, or businesses and all copies thereof and all other
property belonging to the Employer, whatsoever, including, without limitation,
all Confidential Information. Employee shall have no right to copy or
otherwise reproduce lists, books or accounts, records or other property of the
Employer.
F. REMEDIES.
(1) ENFORCEMENT OF COVENANTS. Employee agrees
that a violation on his part of any Covenant
in this Paragraph 6 will cause such damage to
the Employer as will be irreparable and for
that reason, Employee further agrees that the
Employer shall be entitled, as a matter of
right, to an injunction out of any court of
competent jurisdiction, restraining any
further violation of the Covenants by
Employee, his employer, employees, partners,
or agents. In addition to the foregoing
remedy, in the event of a violation by
Employee of any Covenant in this Paragraph 6,
Employee shall be liable to the Employer for
actual damages. Such right to injunction and
actual damages shall be cumulative and in
addition to whatever other remedies the
Employer may have.
EMPLOYMENT AGREEMENT - 8 -
<PAGE> 12
(2) INDEPENDENT COVENANTS. Each of the Covenants
contained in this Paragraph 6 shall be
construed as covenants or agreements
independent of any other provision of this
Paragraph 6 of this Agreement and the
allegation or existence of any claim or cause
of action of Employee against the Employer,
whether predicated on this Agreement or
otherwise, shall not constitute a defense to
the enforcement by the Employer of the
Covenants contained herein.
(3) INTERPRETATION. It is the intent of the
parties that the provisions contained in
Paragraph 6 shall, to the fullest extent
permissible under law and public policy, be
enforced by the courts of each state and
jurisdiction in which enforcement is sought
and that the unenforceability (or the
modification necessary to conform with such
law and public policy) of any part of
Paragraph 6 shall not be deemed to render
unenforceable any other part of Paragraph 6.
Accordingly, if any part of Paragraph 6 shall
be adjudicated to be invalid or unenforceable
in any action or proceeding in which
Employee, his heirs, executors,
administrators and the Employer, its
successors, or assigns, are parties, whether
in its entirety or except as modified as to
duration, territory, accounts, employees, or
otherwise, then that part shall be deemed
deleted or amended, as the case may be, from
the Agreement in order to render the
remainder of Paragraph 6 both valid and
enforceable. Any such deletion or amendment
shall apply only where the court rendering
the same has jurisdiction.
(4) SURVIVAL. Notwithstanding any provision in
this Agreement to the contrary, the
representations of Employee contained in
Paragraph 6A and the rights of the Employer
hereunder shall not terminate upon the
termination of this Agreement but shall
continue to remain in full force and effect
FOR A PERIOD OF THIRTY-SIX (36) MONTHS AFTER
THE TERMINATION FOR EMPLOYEE'S EMPLOYMENT
WITH THE EMPLOYER, IRRESPECTIVE OF THE TIME,
MANNER OR CAUSE OF HIS TERMINATION.
(5) NOTICE REQUIRED. Employee expressly agrees
to notify any prospective employer or
affiliate in a Competing Business of the
Covenants, and authorizes Employer to make
contact with, and discuss the nature and
obligations of these Covenants with, any
person or affiliate reasonably believed by
Employer to be engaged or about to be engaged
in an act that would constitute a violation
of the Covenants. Employee hereby waives and
releases Employer from, any claims whatsoever
arising in connection with the Employer's
contact or discussions with such person or
affiliate.
EMPLOYMENT AGREEMENT - 9 -
<PAGE> 13
7. TERM. Subject to the provisions for termination as provided
elsewhere herein the term of Employee's employment under this Agreement shall
commence on October 2, 1997, and terminate only pursuant to such stated
provisions for termination.
8. TERMINATION. Notwithstanding anything herein contained to
the contrary (including Section 7 hereof), the employment portions (as
distinguished from the retirement and deferred compensation provisions hereof
which continue for so long as Employee or his spouse is living during the
period of twenty (20) years from the date hereof) of this Agreement shall
terminate upon the first to occur of any of the following events:
A. DEATH. Upon the death of Employee.
B. DISABILITY. In the event that there should be at any
time any issue or dispute regarding the disability or capacity of the Employee
to fulfill the role of Chief Executive Officer and, when applicable, Chairman,
such issue will be resolved by a licensed physician of the appropriate
recognized field of medicine or psychiatric practice selected by Employer who
has examined Employee; provided, however, if Employee disagrees with such
determination, then Employee and Employer shall agree upon an independent
qualified physician to review the case and make a final determination of
disability. If the parties cannot agree upon an independent physician to make
such determination, then each party shall appoint a physician and those two
physicians shall select a third physician who shall then make a final and
binding determination with respect to Employee's disability.
C. MUTUAL CONSENT. By mutual written consent of the
parties.
D. BY EMPLOYEE. By Employee by giving 30 days' written
notice of termination to Employer.
E. FOR "GOOD CAUSE". By Employer upon written notice
for "good cause", which shall mean for purposes of this Agreement, Employee's
(i) conviction of a felony or any other criminal act which the Board considers
materially damaging to the reputation of the Employer, (ii) conviction of
fraud, (iii) conviction of dishonesty, self- dealing, or embezzlement, (iv)
willful and intentional violation of Employer's published policies, (v) gross
or intentional neglect of duty, (vi) failure or unwillingness to perform
substantially and faithfully Employee's duties hereunder (other than a failure
due to Employee's disability), or (vii) any act or failure to act which
undermines or besmirches the Employer's business reputation; provided, however,
in the event "good cause" relates to item (iv) through (vi) above, then
Employer shall notify Employee of such cause, and, if such violation can be
cured, Employee shall have 30 days from receipt of notice to cure such
violation.
F. OCTOBER 2, 2012.
The effective date of termination under the foregoing provisions shall be as
follows:
EMPLOYMENT AGREEMENT - 10 -
<PAGE> 14
(1) SECTION 8(A), the date of death.
(2) SECTION 8(B), the date of written notice from
the Employer to Employee of his "disability"
termination.
(3) SECTION 8(C), the date determined under the
written mutual consent of the parties.
(4) SECTION 8(D), the termination date as
provided in Employee's written notice;
provided that the Employer may accelerate the
termination so that it occurs at any time
during the 30-day notice period, while
continuing Employee's Base Salary for the
remainder of the 30-day notice period.
(5) SECTION 8(E), the termination shall be
immediate upon the delivery by Employer of
written notice or the end of the cure period
if cure is possible but is not effected.
(6) SECTION 8(F), the date therein stated.
Notwithstanding the foregoing Employer may terminate Employee's use of
Employer's offices, equipment and supplies at any time after notice of
termination of employment is given by Employer or Employee.
9. PAYMENTS UPON TERMINATION; SEVERANCE.
A. DEATH. In the event termination of employment is the
result of death under Section 8A above, Employee shall be paid his Base Salary
through the end of the month in which death occurred; and the right of
Employee's representative to exercise stock options, if any, will be determined
in accordance with the terms of the Stock Option Plan.
B. DISABILITY. In the event of termination of
employment for disability under Section 8(B) above, Employee shall be paid his
Base Salary through the date of termination of employment; and the right of
Employee or Employee's representative to exercise stock options, if any, will
be determined in accordance with the terms of the Stock Option Plan.
C. MUTUAL CONSENT. If termination of employment is by
mutual consent under Section 8(C) above, the parties shall agree to the
payments to be made, if any, to Employee upon such termination.
D. BY EMPLOYEE. In the event of termination of
employment by Employee under Section 8(D), Employee shall be paid his Base
Salary through the date of termination of
EMPLOYMENT AGREEMENT - 11 -
<PAGE> 15
employment. Employee's right to exercise stock options, if any, will be
determined in accordance with the terms of the Stock Option Plan.
E. FOR GOOD CAUSE. In the event of a termination of
employment for good cause under Section 8(E), Employee will be entitled to
receive his Base Salary through the date of termination of employment.
Employee will not be entitled to exercise any unexercised stock options under
the Stock Option Plan.
F. EXPIRATION OF AGREEMENT. In the event termination of
employment is the result of death under Section 8A above, Employee shall be
paid his Base Salary through the end of the month in which death occurred; and
the right of Employee's representative to exercise stock options, if any, will
be determined in accordance with the terms of the Stock Option Plan.
G. ADDITIONAL BENEFITS. In the event of termination of
employment under Section 8, other than for good cause under Section 8(E),
Employee will be entitled to receive, in addition to any other amounts payable
to Employee under Sections 9(A) through 9(D) above, a severance benefit in an
amount equal to two times his base salary paid by Employer during the twelve
month period immediately preceding his termination of employment, reduced by
the Base Salary payable to Employee under Sections 9(A) through 9(D). In no
event will any such payment reduce retirement and deferred compensation
payments to the Employee.
H. RIGHTS OF EMPLOYEE IN THE EVENT OF A CHANGE OF
CONTROL.
(1) CHANGE OF CONTROL. In the event that twenty
percent (20%) or more of the equity securities of the Corporation
should be acquired by one or more affiliated persons other
than members of the Snelling Family (with the Snelling Family
expressly including the families of Robert O. Snelling, Jr., J.
Russell Crews, Richard H. Spragins, Robert R. Paulk, Linda A. Paulk
and Crista C. Coppock) or if the Corporation should be party to a
merger in which the Corporation is not the survivor (other than a
reincorporation for the sole purpose of changing the state of
incorporation of the Corporation), or in the event that a majority of
the Corporation's nominees for the Board of Directors of the
Corporation should not be elected as Directors of the Corporation in
any year, the Employee will have the right to afford himself with the
remedies set forth at Section 9(G)(2) hereof.
(2) RIGHTS AND REMEDIES. In the event that the
conditions as set forth in Section 9(G)(1) hereof exist, the
Employee at his election within twelve (12) months of such event,
either:
a. Have the right to have his payments
pursuant to Section 5 hereof
increased by ten percent (10%)
(which alternative will be deemed to
have been selected if no election is
made); or
EMPLOYMENT AGREEMENT - 12 -
<PAGE> 16
b. Require the Corporation to pay as a
lump sum to the Employee the present
value of the economic benefits
pursuant to this Agreement utilizing
the life expectancies and actuarial
value based upon the Actuarial Value
Alpha Tables published by the
Internal Revenue Service utilizing
the Consumer Price Index average of
the preceding three years and
determining the present value by
utilizing 120% of the Applicable
Federal Rate (as defined under
Section 1274 of the Internal Revenue
Code of 1986) in effect at such time
(the amount determined pursuant to
hereto being the "Determined Present
Value").
(3) INCREASE FOR ANY APPLICABLE EXTRAORDINARY
TAXES. In the event that the exercise of any remedies by the Employee
should have the effect of increasing any applicable tax (other than
ordinary income tax or capital gains tax) payable by the Employee,
the amount payable will be grossed up so that the net effect to the
Employee will be the same as if no such extraordinary tax had been
imposed.
(4) RIGHTS OF SURVIVING SPOUSE. In the event of
the Employee's death, his surviving spouse will be afforded the same
economic rights and remedies pursuant to this Section as the Employee
hereunder to the extent of the spouse's interests.
10. REFERENCES AND GENDER. All references to "sections" or
"subsections" contained herein are, unless specifically indicated otherwise,
references to sections or subsections of this Agreement. Whenever herein the
singular number is used, the same shall include the plural where appropriate,
and words of any gender shall include each other gender where appropriate. The
terms "herein" and "hereof" as used in this Agreement are references to this
Agreement, unless the context indicates otherwise.
11. CAPTIONS. The captions, headings, and arrangements used in
this Agreement are for convenience only and do not in any way affect, limit,
amplify, or modify the terms and provisions hereof.
12. NOTICES. Whenever this Agreement requires or permits any
consent, approval, notice, request, or demand from one party to another, the
consent, approval, notice, request, or demand must be in writing to be
effective, including, without limitation, telex, or telegraphic communications,
and shall be deemed to have been given on the earlier of receipt or the third
day after it is enclosed in an envelope, addressed to the Employee at the
address set forth for the Employee on the payroll records of the employer and
to the Employer at the address stated below or at such other address as the
Employer may designate for all purposes as its corporate headquarters, properly
stamped, sealed, and deposited in the United States mail. The address of
Employer as of the effective date of this Agreement is as set forth on the
signature page hereof.
EMPLOYMENT AGREEMENT - 13 -
<PAGE> 17
13. INSURANCE; MEDICAL EXAM. During Employee's employment,
Employee agrees to take a physical examination to be performed by a medical
doctor selected by the Employer. The cost of such exam will be borne by the
Employer. During Employee's employment, Employer shall be required as a
condition of employment to take an annual physical exam at the expense of the
Employer. In addition, Employee agrees to take such physical examination as
may be required by the Employer in order for the Employer to purchase insurance
on Employee's life in such amount or amounts as the Employer deems appropriate.
14. INVALID PROVISIONS. If any provision of this Agreement is
held to be illegal, invalid, or unenforceable under present or future laws
effective during the term, including renewals, of this Agreement, such
provision shall be fully severable; this Agreement shall be constructed and
enforced as if such illegal, invalid, or unenforceable provision had never
comprised a part of this Agreement; and the remaining provisions of this
Agreement shall remain in full force and effect and shall not be affected by
the illegal, invalid, or unenforceable provision or by its severance from this
Agreement. Furthermore, in lieu of each such illegal, invalid, or
unenforceable provision there shall be added automatically as part of this
Agreement a provision as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible and be legal, valid, and
enforceable.
15. NONASSIGNABILITY. Neither this Agreement, nor any rights or
obligations of either party hereunder may be transferred or assigned except
that the Employer may assign this entire Agreement to any successor to all or
substantially all of the employer's business and assets.
16. ENTIRE AGREEMENT. This Agreement contains the entire
agreement of the parties hereto and supersedes any prior agreement regarding
the subject matter hereof. No modification or amendment of any of the terms,
conditions, or provisions herein may be made otherwise than by written
agreement signed by the parties hereto, or in any event by the parties sought
to be bound hereby.
17. LAWS GOVERNING. THIS AGREEMENT SHALL BE CONSTRUED AND
INTERPRETED ACCORDING TO THE LAWS OF THE STATE OF TEXAS.
18. SUCCESSION. This Agreement shall inure to the benefit of and
be binding upon the parties hereto, and upon their successors in interest of
any kind whatsoever.
19. ARBITRATION; LEGAL FEES
A. ARBITRATION. Any controversy or claim arising out of
or relating to this Agreement, including but not limited to claims based on or
arising from an alleged tort, shall at the request of any party be determined
by arbitration, under the auspices and rules of the American Arbitration
Association, in accordance with the Texas General Arbitration Act if
applicable, otherwise in accordance with the United States Arbitration Act.
Judgment upon the award rendered by the arbitrator shall be entered in any
court having jurisdiction. The institution and maintenance
EMPLOYMENT AGREEMENT - 14 -
<PAGE> 18
of an action for judicial relief or pursuant of any provisional or ancillary
remedy shall not constitute a waiver of the right of any party to submit the
controversy or claim to arbitration. Nothing contained in this paragraph is
intended to prevent a party from bringing an action in State or Federal court
in Dallas County, Texas, or such other county and state in which Employer then
has its principal place of business, to (i) enforce that party's right to
arbitrate under this Agreement or (ii) to obtain relief by way of Specific
Performance to enforce the Covenants contained in Paragraph 6 hereof. The
arbitration shall be commenced by filing a demand for arbitration upon the
other party who is qualified to make decisions in legal matters. The
arbitration proceeding shall be held in Dallas County, Texas. The arbitrator
shall maintain the privacy of the hearings, and shall have the power to exclude
witnesses, other than a party, during the testimony of any other witness. The
prevailing party in the arbitration proceeding shall be entitled to reasonable
attorney's fees, costs, and necessary expenses incurred in connection with such
proceeding, as determined by the arbitrator.
B. LEGAL FEES AND EXPENSES IN EVENT OF DISPUTE.
The Corporation will pay promptly upon submission by the Employee any and all
legal fees and expenses of Employee in the event of any dispute or any
disagreement regarding this Agreement, its terms or the effect hereof. The
Corporation will make prompt payment of any such fees and expenses upon
submission thereof by Employee, or on his behalf, without requiring detailed
descriptions of the services provided, which could compromise the privilege of
such counsel. Such payment will be made in all events within thirty (30) days
of submission by the Employee.
20. WAIVERS AND CONSENTS. One or more waivers of any covenant,
term, or provision of this Agreement by any party shall not be construed as a
waiver of a subsequent breach of the same covenant, term, or provision, nor
shall it be considered a waiver of any other then existing or subsequent breach
of a different covenant, term, or provision. The consent or approval by either
party to or of any act by the other party requiring such consent or approval
shall not be deemed to waiver or render unnecessary consent to or approval of
any subsequent similar act. No custom or practice of either party shall
constitute a waiver of either party's rights to insist upon strict compliance
with the terms hereof.
21. MULTIPLE COUNTERPARTS. This Agreement may be executed in a
number of identical counterparts, each of which, for all purposes, is to be
deemed an original, and all of which constitute, collectively, an agreement;
but in making proof of this Agreement, it shall not be necessary to produce or
account for more than one such counterpart.
EMPLOYMENT AGREEMENT - 15 -
<PAGE> 19
IN WITNESS WHEREOF, this Agreement executed as of the date first
written above.
EMPLOYEE: EMPLOYER:
SNELLING AND SNELLING, INC.
- -----------------------------
Robert O. Snelling, Sr.
By:
-----------------------------------
Name: Timothy J. Loncharich
Title: President
Address:
12801 North Central Expressway
Suite 700
Dallas, Texas 75243
EMPLOYMENT AGREEMENT - 16 -
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
BETWEEN
SNELLING AND SNELLING, INC.
AND
TIMOTHY J. LONCHARICH
Effective: July 26, 1994
==========================================
SNELLING AND SNELLING, INC.
12801 NORTH CENTRAL EXPRESSWAY, SUITE 700
DALLAS, 75243
TELEPHONE: 239-7575
==========================================
<PAGE> 2
EMPLOYMENT AGREEMENT
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C>
1. Employment
2. Duties and Functions as Employee
A. Positions
B. General Duties and Functions
3. Extent of Employee Services
4. Satisfaction of Employer
5. Employee's Compensation and Benefits
A. Base Salary
B. Performance Bonus
C. Long-Term Incentive Bonus
D. Other Benefits
E. Vacations
F. Business Expense Reimbursement
6. Employee Covenants
A. Employee Representations
B. Non-Competition
C. Non-Interference
D. Disclosure of Information
E. Return of Records
F. Remedies
7. Term
8. Termination
A. Death
B. Disability
C. Mutual Consent
D. By Employee
E. For "Good Cause"
F. By Employer
G. July 31, 1999
9. Payments upon Termination; Severance
A. Death
B. Disability
</TABLE>
EMPLOYMENT AGREEMENT -i- LONCHARICH
<PAGE> 3
<TABLE>
<S> <C>
C. Mutual Consent
D. By Employee
E. For "Good Cause"
F. By Employer
G. July 31, 1999
H. Failure to Perform
10. References and Gender
11. Captions
12. Notices
13. Insurance; Medical Exam
14. Invalid Provisions
15. Amendments
16. Nonassignability
17. Entire Agreement
18. Laws Governing
19. Succession
20. Arbitration
21. Waivers and Consents
22. Multiple Counterparts
</TABLE>
EMPLOYMENT AGREEMENT -ii- LONCHARICH
<PAGE> 4
EMPLOYMENT AGREEMENT
This Agreement made this ______ day of July, 1994, effective as of July 26,
1994, by and between Snelling and Snelling, Inc., a Pennsylvania corporation
(the 'Employer'), and Timothy J. Loncharich ('Employee').
R E C I T A L S:
A. Employee desires employment as an Employee of the Employer.
B. The Employer desires to employ Employee under the terms and conditions
hereof.
C. In consideration of the mutual covenants herein contained, the parties
agree as follows:
Agreement
1. EMPLOYMENT. Conditioned upon Employee passing a physical exam
performed by medical doctors selected by the Employer, the Employer hereby
employs Employee and Employee hereby accepts such employment upon the terms and
conditions of this Agreement.
2. DUTIES AND FUNCTIONS AS EMPLOYEE. Employee is engaged by the
Employer to perform the following duties and functions:
A. POSITIONS. Employee will serve as President and
Chief Executive Officer of the Employer.
B. GENERAL DUTIES AND FUNCTIONS. Employee agrees to
render to Employer his services in the executive capacities provided herein.
The Board of Directors will appoint Employee to serve on the Board of Directors
until the next regularly scheduled annual meeting of shareholders. In the
above capacities, Employee shall perform such duties and functions as are
customarily performed by the principal corporate officer of a company of a size
and nature comparable to Employer, including, for example, the right to employ
and discharge employees; provided, the Chairman of the Board shall have the
right to discharge any employee with or without cause. Employee shall be
subject generally to the direction of the Board of Directors and the Chairman
of the Board with respect to his duties and to approval and disapproval of all
Employer policies.
3. EXTENT OF EMPLOYEE SERVICES. Employee shall devote his full
working time, attention, efforts, and energies to the business and affairs of
the Employer and its affiliated companies. Employee during the term of this
Agreement shall not engage in any other business activity whether or not that
business activity is pursued for gain, profit, or other pecuniary advantages,
nor shall Employee be interested, directly or indirectly, in any form, fashion,
or manner, as partner, officer, director, stockholder, advisor, employee,
investor, or in any other form or capacity, in any other business similar to
the Employer's business without the Employer's
EMPLOYMENT AGREEMENT -1- LONCHARICH
<PAGE> 5
consent; provided, however, that nothing herein contained shall be deemed to
prevent or limit the right of Employee to invest any of his personal funds in
the capital, stock, or other securities of any corporation whose stock or
securities are publicly owned or are regularly traded on any public exchange or
regulated market. Notwithstanding the foregoing, Employee may, with the
permission of the Board of Directors of the Employer, sit on the boards of
corporations (public and private) and devote time and attention to nonprofit
organizations and academic institutions, provided such activities shall be
consistent with Employee's commitments to the Employer and not affect
Employee's performance of Employee's obligations under this Agreement. During
the term of Employee's employment, Employee's principal residence shall be in
Dallas County, Texas, or a county contiguous thereto or at such other place as
Employer shall, in good faith, require pursuant to Paragraph 4 hereof.
4. SATISFACTION OF EMPLOYER. Employee agrees that he will
faithfully, promptly, and to the best of his ability, experience, and talent,
perform all of the duties that may be required of and from him pursuant to the
express and implicit terms hereof Such duties shall be rendered at Dallas,
Texas, and at such other place or places as the Employer shall in good faith
require, or as the interests, needs, business, and opportunities of the
Employer shall require or make advisable.
5. EMPLOYEE'S COMPENSATION AND BENEFITS. For all services
rendered by Employee during his employment hereunder, the Employer shall
compensate Employee as follows:
A. BASE SALARY. Employee's base salary shall be
determined by the Employer's Board of Directors, subject to the following
minimum amount. For the term of this Agreement, Employee's minimum base salary
shall be $230,000 per year. Employee's base salary shall be payable in
accordance with the Employer's payroll practices as in effect from time to
time, and subject to such withholding as is required by law.
B. PERFORMANCE BONUS. In addition to base salary,
Employee shall receive a 'Performance Bonus' (herein so called) determined as
follows:
(1) DETERMINATION. The Performance Bonus will be
determined from Employer's net annual income
before state and federal taxes ('Before Tax
Earnings'). The Employer's Board of
Directors shall each year during the term of
this Agreement establish a Performance Bonus
Criteria (herein so called) which shall be
Employer's projected Before Tax Earnings for
that year.
a. LEVEL ONE. If Employer's Before Tax
Earnings are 80%-99% of the
Performance Bonus Criteria, the
Performance Bonus shall be 25 % of
Employee's base salary.
EMPLOYMENT AGREEMENT -2- LONCHARICH
<PAGE> 6
b. LEVEL TWO. If Employer's Before Tax
Earnings are 100% - 119% of the
Performance Bonus Criteria, the
Performance Bonus shall be 50% of
Employee's base salary.
c. LEVEL THREE. If Employer's Before
Tax Earnings are 120% or greater of
the Performance Bonus Criteria, the
Performance Bonus shall be 100% of
Employee's base salary.
(2) LIMITATION. The Performance Bonus shall not
exceed Employee's base salary.
(3) SOURCE OF FINANCIAL INFORMATION AND
CALCULATION. Before Tax Earnings shall be
determined on an accrual basis based on the
Employer's audited annual financial
statements for its fiscal tax year. The
determination of Employer's Before Tax
Earnings by the Employer's independent
auditors will be final and binding on all
parties.
(4) MID-YEAR CALCULATION. If employment is
started or terminated during a fiscal year
and Employee is entitled to the Performance
Bonus hereunder, the Performance Bonus
determination will be made at the end of the
Employer's fiscal year and prorated based on
the number of days Employee was employed
during that year; provided, in the case of
Employee's termination of employment, the
Employer in its sole discretion may elect to
determine the Performance Bonus based on
Before Tax Earnings annualized through the
last day of the month preceding the date of
Employee's termination of employment.
(5) PAYMENT. Except as otherwise provided for
herein, the Performance Bonus will be paid
within 30 days following the auditor's
completion of the Employer's audited annual
financial statements.
C. LONG-TERM INCENTIVE BONUS. Employee will have the
opportunity to earn additional compensation under the terms of that certain
Long-Term Incentive Bonus Plan attached hereto as Exhibit A (the 'LTI Plan").
D. OTHER BENEFITS. The Employer shall, at its expense,
furnish Employee with such other benefits as are from time to time provided by
the Employer for the benefit of its executives generally during the term of this
Agreement.
EMPLOYMENT AGREEMENT -3- LONCHARICH
<PAGE> 7
E. VACATIONS. Employee shall be entitled to 3 weeks (15
business days) vacation during the first year of his employment and thereafter
he shall be entitled to 4 weeks (20 business days) vacation per year. Vacation
will be determined on an annual basis and vacation time may not to be carried
over from one year to the next nor will Employee be entitled to be paid for
vacation time accrued but not taken, even in the event of Employee's
termination of employment.
F. BUSINESS EXPENSE REIMBURSEMENT. Employee will be
reimbursed for reasonable out-of-pocket business expenses in accordance with
the Employer's reimbursement policies. In addition, the Employer will provide
Employee a leased company car comparable to cars provided to other Employer
executives with gas, maintenance, and insurance to be provided at Employer's
expense.
6. EMPLOYEE COVENANTS. The parties recognize that the services
to be rendered as an employee under this Agreement by Employee are special,
unique, and of an extraordinary character and therefore, Employee in
consideration for the employment hereunder makes the following representations
and covenants (the 'Covenants') for the benefit of Employer:
A. EMPLOYEE REPRESENTATIONS.
(1) REASONABLENESS OF COVENANTS. Insofar as the
Covenants set out in this Paragraph 6 are
concerned, Employee specifically acknowledges
and agrees as follows: (i) the Covenants are
reasonable and necessary to protect the
goodwill and business interests of the
Employer; (ii) the scope, time, and
geographical area limitations of the
Covenants are reasonable and necessary to
protect the goodwill and legitimate business
interests of the Employer; (iii) the
consideration for the Covenants is the
employment and continued employment of
Employee by the Employer, the severance
payments, and the other monetary
considerations set forth in this Agreement;
(iv) the Covenants are not oppressive to
Employee and do not impose a greater
restraint on Employee than is necessary to
protect the goodwill and other business
interests of the Employer; and (v) upon
termination of employment hereunder for any
reason Employee acknowledges he will continue
to be able to earn a livelihood without
violating the provisions of this Paragraph 6.
(2) PROPRIETARY INFORMATION. Employee is aware
and acknowledges that Employer has developed
a special competence in its Business
(hereinafter defined) and has accumulated
Confidential Information (hereinafter
defined) not generally known to others in the
field which is of unique
EMPLOYMENT AGREEMENT -4- LONCHARICH
<PAGE> 8
value in the conduct and growth of Employer's
Business and which Employer treats as
proprietary.
(3) ACCESS TO CONFIDENTIAL INFORMATION. In the
course of Employee's employment, Employee
will be employed in a position or positions
with Employer in which Employee may receive
or contribute to the Confidential Information
of Employer. Employee recognizes that
optimum progress of Employer's Business
cannot take place unless Confidential
Information is entrusted to Employee.
(4) PROTECTION OF GOODWILL. Employee
acknowledges that in the course of carrying
out, performing, and fulfilling his
responsibilities to Employer, Employee has
and will have access to and be entrusted with
Confidential Information relating to
Employer's Business and Clients (hereinafter
defined). Employee recognizes that (i) the
goodwill of Employer depends upon, among
other things, its keeping the Confidential
Information confidential and that
unauthorized disclosure of the Confidential
Information would irreparably damage
Employer, and (ii) disclosure of any
Confidential Information to competitors of
Employer or to the general public would be
highly detrimental to Employer. Employee
further acknowledges that in the course of
performing his obligations to Employer, he
will be a representative of Employer to many
of Employer's Clients and in some instances
Employer's primary contact with the Client,
and as such will be responsible for
maintaining or enhancing the business and
goodwill of Employer with those Clients.
(5) MEANINGS OF TERMS. Employee acknowledges
that the following terms shall have the
following meanings:
a. BUSINESS shall mean Employer's
present business of providing
personnel services, including but
not limited to, temporary help
services, employee placement,
employee search, employee leasing,
and as such business may be expanded
and diversified in the future
through acquisitions by Employer or
future development or
diversification, including any
business which Employer has targeted
or discussed to be targeted by
officers or board members for
acquisition or entry during the
Restricted Period (as defined below)
EMPLOYMENT AGREEMENT -5- LONCHARICH
<PAGE> 9
b. EMPLOYER shall refer to Snelling and
Snelling, Inc. and shall also be
deemed to include Plant Maintenance,
Inc., of California, Advance
Processing Systems, Inc., and any
other business or entity acquired by
Employer.
c. CLIENTS means any individual,
principal, proprietorship,
partnership, corporation,
association, or other entity that
has been served by Employer as a
customer or franchise during the
term of Employee's employment,
including those who were (or became)
Client(s) of Employer at the time of
(or at any time during) Employee's
employment.
d. COMPETING BUSINESS means any
business, firm, undertaking,
company, or organization, other than
Employer, which competes in any
state in the United States in which
the Employer's business is located
(the 'Restricted Area') with
Employer's Business.
e. CONFIDENTIAL INFORMATION means
information disclosed to or known to
Employee as a direct or indirect
consequence of, or through his
employment with Employer, about
Employer's business methods,
operations, and services, including,
but not limited to, all information,
written or oral, including without
limitation, manuals, videos, audios,
and internal publications not
generally known, or proprietary to
Employer, about Employer's
manufacturing, marketing, pricing,
accounting, merchandising, and
information gathering techniques and
methods, and all accumulated data,
listings, or similar recorded matter
used or useful in Employer's
Business, including but not limited
to, Employer's Client lists,
Employer's franchisees' Client
lists, reports, business forms,
advertisements, and marketing
reports and presentation materials.
Without regard to whether any or all
of the foregoing matters would be
deemed confidential, material, or
important, the parties hereto
stipulate that as between them, the
same are important, material, and
confidential and gravely affect the
effective and successful conduct of
the business of the Employer, and
its goodwill.
EMPLOYMENT AGREEMENT -6- LONCHARICH
<PAGE> 10
B. NON-COMPETITION. Employee agrees that during his
employment with Employer and for a period of twenty-four (24) months after the
termination of his employment with Employer (the "Restricted Period"), Employee
shall not within the Restricted Area, either through any kind of ownership
(other than ownership of securities of publicly held corporations of which
Employee owns less than one percent (1%) of any class of outstanding
securities), or as a director, officer, principal, agent, employee, employer,
advisor, consultant, co-partner, or in any individual or representative
capacity whatsoever, either for Employee's own benefit or for the benefit of
any other person or firm, partnership, association, corporation, or other
entity, without the prior written consent of Employer, participate, directly or
indirectly, in a Competing Business.
C. NON-INTERFERENCE. During his employment with the
Employer and for a period of thirty-six (36) months after the termination of
his employment, irrespective of the time, manner, or cause of his termination,
Employee shall not:
(1) SOLICITATION. Directly or indirectly, either
as principal, agent, employee, employer,
stockholder, co-partner, or in any other
individual or representative capacity
whatsoever induce, solicit, or attempt to
induce or solicit any Client to terminate its
relationship with the Employer, either for
Employee's own benefit or for the benefit of
any other person, firm, or corporation
competitive with that of the Employer.
(2) SOURCES. Directly or indirectly, request or
advise any present or future merchandise
resource, supply resource, or service
resource of the Employer or any Client to
withdraw, curtail, or cancel the furnishing
or sales of merchandise, supplies, or
services to the Employer or any Client.
(3) EMPLOYEES. Directly or indirectly, induce or
attempt to influence any employee of the
Employer or employee of any Client to
terminate employment with the Employer or
the Client, as the case may be.
D. DISCLOSURE OF INFORMATION. Unless compelled to
disclose information in a legal proceeding, Employee expressly covenants and
agrees that he will not, during or after the termination of his employment with
the Employer, irrespective of the time, manner or cause of the termination,
directly or indirectly use, disclose, copy, or assist any other person or firm
in the use, disclosure, or copying of, any Confidential Information, except
with the written consent of or at the written request of Employer.
E. RETURN OF RECORDS. Upon termination of his
employment, Employee will surrender to the Employer all lists, books, and
records of or in connection with the Employer's Clients, customers, suppliers,
prospective customers, or businesses and all copies thereof and all other
property belonging to the Employer, whatsoever, including, without
EMPLOYMENT AGREEMENT -7- LONCHARICH
<PAGE> 11
limitation, all Confidential Information. Employee shall have no right to copy
or otherwise reproduce lists, books or accounts, records or other property of
the Employer.
F. REMEDIES.
(1) ENFORCEMENT OF COVENANTS. Employee agrees
that a violation on his part of any Covenant
in this Paragraph 6 will cause such damage to
the Employer as will be irreparable and for
that reason, Employee further agrees that the
Employer shall be entitled, as a matter of
right, to an injunction out of any court of
competent jurisdiction, restraining any
further violation of the Covenants by
Employee, his employer, employees, partners,
or agents. In addition to the foregoing
remedy, in the event of a violation by
Employee of any Covenant in this Paragraph 6,
Employee shall be liable to the Employer for
actual damages. Such right to injunction and
actual damages shall be cumulative and in
addition to whatever other remedies the
Employer may have.
(2) SET OFF. In addition to the other remedies
available at law or equity, the Employer
shall have the right to set off any
obligation arising pursuant to this Paragraph
6 against any amount owed by Employer to
Employee, including but not limited to, any
salary or other compensation, or payable on
behalf of Employee by Employer.
(3) INDEPENDENT COVENANTS. Each of the Covenants
contained in this Paragraph 6 shall be
construed as covenants or agreements
independent of any other provision of this
Paragraph 6 of this Agreement and the
allegation or existence of any claim or cause
of action of Employee against the Employer,
whether predicated on this Agreement or
otherwise, shall not constitute a defense to
the enforcement by the Employer of the
Covenants contained herein.
(4) INTERPRETATION. It is the intent of the
parties that the provisions contained in
Paragraph 6 shall, to the fullest extent
permissible under law and public policy, be
enforced by the courts of each state and
jurisdiction in which enforcement is sought
and that the unenforceability (or the
modification necessary to conform with such
law and public policy) of any part of
Paragraph 6 shall not be deemed to render
unenforceable any other part of Paragraph 6.
Accordingly, if any part of Paragraph 6 shall
be adjudicated to be invalid or unenforceable
in any action or proceeding in which
EMPLOYMENT AGREEMENT -8- LONCHARICH
<PAGE> 12
Employee, his heirs, executors,
administrators and the Employer, its
successors, or assigns, are parties, whether
in its entirety or except as modified as to
duration, territory, accounts, employees, or
otherwise, then that part shall be deemed
deleted or amended, as the case may be, from
the Agreement in order to render the
remainder of Paragraph 6 both valid and
enforceable. Any such deletion or amendment
shall apply only where the court rendering
the same has jurisdiction.
(5) SURVIVAL. Notwithstanding any provision in
this Agreement to the contrary, the Covenants
of Employee contained in this paragraph 6 and
the rights of the Employer hereunder shall
not terminate upon the termination of this
Agreement but shall continue to remain in
full force and effect.
(6) NOTICE REQUIRED. Employee expressly agrees
to notify any prospective employer or
affiliate in a Competing Business of the
Covenants, and authorizes Employer to make
contact with, and discuss the nature and
obligations of these Covenants with, any
person or affiliate reasonably believed by
Employer to be engaged or about to be engaged
in an act that would constitute a violation
of the Covenants. Employee hereby waives and
releases Employer from, any claims whatsoever
arising in connection with Employer's contact
or discussions with such person or affiliate.
7. TERM. Subject to the provisions for termination as provided
elsewhere herein, the term of Employee's employment under this Agreement shall
commence on July 26, 1994, and terminate on July 31, 1999.
8. TERMINATION. Notwithstanding anything, herein contained to
the contrary (including Paragraph 7 hereof), this Agreement shall terminate
upon the first to occur of any of the following events:
A. DEATH. Upon the death of Employee.
B. DISABILITY. Upon the disability of Employee. For
purposes of this Agreement, Employee shall be subject to a "disability" when he
is unable to continue his normal duties of employment by reason of a physical
or mental impairment. In determining whether Employee is subject to a
disability, Employer's determination shall be based upon the opinion of any
licensed physician of the appropriate recognized field of medicine or
psychiatric practice who has examined Employee and who agrees and opines that
the Employee is disabled; provided, however, if Employee disagrees with such
determination, then Employee and Employer shall agree upon an independent
qualified physician to review the case and make a
EMPLOYMENT AGREEMENT -9- LONCHARICH
<PAGE> 13
final determination of disability. If the parties cannot agree upon an
independent physician to make such determination, then each party shall appoint
a physician and those two physicians shall select a third physician who shall
then make a final and binding determination with respect to Employee's
disability.
C. MUTUAL CONSENT. By mutual written consent of the
parties.
D. BY EMPLOYEE. By Employee by giving 30 days' written
notice of termination to Employer.
E. For "Good Cause". By Employer upon written notice
for "good cause," which shall mean for purposes of this Agreement, Employee's
(i) commission of a felony or any other criminal act which the Board of
Directors consider materially damaging to the reputation of the employer, (ii)
fraud, (iii) dishonesty, self-dealing, or embezzlement, (iv) violation of
Employer's published policies, (v) gross or intentional neglect of duty, (vi)
failure or unwillingness to perform substantially and faithfully Employee's
duties hereunder, or (vii) any act or failure to act which undermines or
besmirches the Employer's business reputation; provided, however, in the event
'cause' relates to items (iv) through (vi) above, then Employer shall notify
Employee of such cause, and, if such violation can be cured, Employee shall
have 30 days from receipt of notice to cure such violation.
F. BY EMPLOYER. By Employer, upon Employer giving at
least 30 days advance written notice to Employee.
G. JULY 31, 1999.
The effective date of termination under the foregoing provisions shall be as
follows:
(1) PARAGRAPH 8A, the date of death.
(2) PARAGRAPH 8B, the date of written notice from
the Employer to Employee of his "disability"
termination.
(3) PARAGRAPH 8C-, the date determined under the
written mutual consent of the parties.
(4) PARAGRAPH 8D, the termination date as
provided in Employee's written notice;
provided that the Employer may accelerate the
termination so that it occurs at any time
during the 30-day notice period, while
continuing Employee's base salary for the
remainder of the 30-day notice period.
(5) PARAGRAPH 8E, the termination shall be
immediate upon the delivery by Employer of
written notice or the end of the cure period
if cure is possible but is not effected.
EMPLOYMENT AGREEMENT -10- LONCHARICH
<PAGE> 14
(6) PARAGRAPH 8F, the termination date as
provided in the Employer's written notice;
provided that the Employer may accelerate the
termination so that it occurs immediately,
while continuing Employee's base salary for
the 30-day notice period.
(7) PARAGRAPH 8G, July 31, 1999.
Notwithstanding the foregoing, Employer may terminate Employee's use of
Employer's offices, equipment, supplies, and vehicles at any time after notice
of termination of employment is given by Employer or Employee.
9. PAYMENTS UPON TERMINATION; SEVERANCE.
A. DEATH. In the event termination is the result of
death under Paragraph 8A above, Employee shall be paid his base salary through
the end of the month in which death occurred; Employee's Performance Bonus will
be payable through the last day of the month preceding the month in which death
occurs; and the vested portion of Employee's incentive bonus under the LTI Plan
earned and vested through the last day of the month preceding the month in
which death occurs will be determined and paid in accordance with the LTI Plan.
B. DISABILITY. In the event of termination for
disability under Paragraph 8B above, Employee shall be paid his base salary
through the date of termination of employment; Employee's Performance Bonus
will be payable through the last day of the month preceding the month in which
the termination of employment occurs; and the vested portion of Employee's
incentive bonus under the LTI Plan earned and vested through the last day of
the month preceding termination of employment will be determined and paid in
accordance with the LTI Plan.
C. MUTUAL CONSENT. If termination of employment is by
mutual consent under Paragraph 8C above, the parties shall agree to the
payments to be made, if any, to Employee upon such termination.
D. BY EMPLOYEE. In the event of termination by
Employee under Paragraph 8D, Employee shall be paid his base salary through
the date of termination of employment. Employee's Performance Bonus will be
payable through the last day of the month preceding the date of termination of
his employment. Employee will not be entitled to receive any benefits under
the LTI Plan.
E. FOR GOOD CAUSE. In the event of a termination of
employment for good cause under Paragraph 8E, Employee will be entitled to
receive his base salary through the date of termination of employment.
Employee will not be entitled to receive any Performance Bonus or benefits
under the LTI Plan.
EMPLOYMENT AGREEMENT -11- LONCHARICH
<PAGE> 15
F. BY EMPLOYER. In the event of a termination of
employment under Paragraph 8F, Employee shall be paid his base salary for six
months following the date of termination. Employee shall be entitled to a pro
rata portion of his Performance Bonus and benefits under the LTI Plan
determined through the date of termination of employment.
G. EXPIRATION OF AGREEMENT. In the event of termination
of employment under Paragraph 8G, Employee shall be paid his base salary,
Performance Bonus and benefits under the LTI Plan through July 31, 1999.
Except for the foregoing payments, Employee shall not be entitled to receive
any other benefits except as may be required by law.
10. REFERENCES AND GENDER. All references to 'paragraphs' or
'subparagraphs' contained herein are, unless specifically indicated otherwise,
references to paragraphs or subparagraphs of this Agreement. Whenever herein
the singular number is used, the same shall include the plural where
appropriate, and words of any gender shall include each other gender where
appropriate. The terms 'herein' and 'hereof' as used in this Agreement are
references to this Agreement, unless the context indicates otherwise.
11. CAPTIONS. The captions, headings, and arrangements used in
this Agreement are for convenience only and do not in any way affect, limit,
amplify, or modify the terms and provisions hereof.
12. NOTICES. Whenever this Agreement requires or permits any
consent, approval, notice, request, or demand from one party to another, the
consent, approval, notice, request, or demand must be in writing to be
effective, including, without limitation, telex, or telegraphic communications,
and shall be deemed to have been given on the earlier of receipt or the third
day after it is enclosed in an envelope, addressed to the party to be notified
at the address stated below or at such other address as may have been
designated by written notice, properly stamped, sealed, and deposited in the
United States mail. The address of each party for the purposes hereof is as
for each party on the signature page hereof.
13. INSURANCE: MEDICAL EXAM. Employee agrees to take a physical
examination to be performed by a medical doctor selected by the Employer. The
cost of such exam will be borne by the Employer. During the term of Employee's
employment he shall be required as a condition of employment to take an annual
physical exam at the expense of the Employer. In addition, Employee agrees to
take such physical examinations as may be required by the Employer in order for
the Employer to purchase insurance on Employee's life in such amount or amounts
as the Employer deems appropriate.
14. INVALID PROVISIONS. If any provision of this Agreement is
held to be illegal, invalid, or unenforceable under present or future laws
effective during the term, including renewals, of this Agreement, such
provision shall be fully severable; this Agreement shall be construed and
enforced as if such illegal, invalid, or unenforceable provision had never
comprised a part of this Agreement; and the remaining provisions of this
Agreement shall
EMPLOYMENT AGREEMENT -12- LONCHARICH
<PAGE> 16
remain in full force and effect and shall not be affected by the illegal,
invalid, or unenforceable provision or by its severance from this Agreement.
Furthermore, in lieu of each such illegal, invalid, or unenforceable provision
there shall be added automatically as part of this Agreement a provision as
similar in terms to such illegal, invalid, or unenforceable provision as may be
possible and be legal, valid, and enforceable.
15. AMENDMENTS. This Agreement may be amended at any time and
from time to time in whole or in part by an instrument in writing setting forth
the particulars of such amendment and duly executed by an authorized officer of
the Employer and by Employee; provided, however, that salary increases or
decreases may be made without a writing if such changes are reflected in the
minutes of the Board of Directors of the Employer.
16. NONASSIGNABILITY. Neither this Agreement, nor any rights or
obligations of either party hereunder may be transferred or assigned except
that the Employer may assign this entire Agreement to any successor to all or
substantially all of the Employer's business and assets.
17. ENTIRE AGREEMENT. This Agreement, together with the Long Term
Incentive Bonus Plan of even date, contains the entire agreement of the parties
hereto. No modification or amendment of any of the terms, conditions, or
provisions herein may be made otherwise than by written agreement signed by the
parties hereto, or in any event by the parties sought to be bound hereby.
18. LAWS GOVERNING. THIS AGREEMENT SHALL BE CONSTRUED AND
INTERPRETED ACCORDING TO THE LAWS OF THE STATE OF TEXAS.
19. SUCCESSION. This Agreement shall inure to the benefit of and
be binding upon the parties hereto, and upon their successors in interest of
any kind whatsoever.
20. ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement, including but not limited to claims based on or
arising from an alleged tort, shall at the request of any party be determined
by arbitration, under the auspices and rules of the American Arbitration
Association, in accordance with the Texas General Arbitration Act if
applicable, otherwise in accordance with the United States Arbitration Act.
Judgment upon the award rendered by the arbitrator shall be entered in any
court having jurisdiction. The institution and maintenance of an action for
judicial relief or pursuit of a provisional or ancillary remedy shall not
constitute a waiver of the right of any party to submit the controversy or
claim to arbitration. Nothing contained in this paragraph is intended to
prevent a party from bringing an action in State or Federal court in Dallas
County, Texas, or such other county and state in which Employer then has its
principal place of business, to (i) enforce that party's right to arbitrate
under this Agreement or (ii) to obtain relief by way of Specific Performance to
enforce the Covenants contained in Paragraph 6 hereof. The arbitration shall
be commenced by filing a demand for arbitration upon the other party or parties
and the American Arbitration Association. The arbitrator shall be a person who
is qualified to make decisions in legal matters. The arbitration proceeding
shall be held in Dallas County, Texas, or such other county
EMPLOYMENT AGREEMENT -13- LONCHARICH
<PAGE> 17
and state in which Employer then has its principal place of business. The
arbitrator shall maintain the privacy of the hearings, and shall have the
power to exclude witnesses, other than a party, during the testimony of any
other witness. The prevailing party in the arbitration proceeding shall be
entitled to reasonable attorney's fees, costs, and necessary expenses incurred
in connection with such proceeding, as determined by the arbitrator.
21. WAIVERS AND CONSENTS. One or more waivers of any covenant,
term, or provision of this Agreement by any party shall not be construed as a
waiver of a subsequent breach of the same covenant, term, or provision, nor
shall it be considered a waiver of any other then existing or subsequent breach
of a different covenant, term, or provision. The consent or approval by
either party to or of any act by the other party requiring such consent or
approval shall not be deemed to waive or render unnecessary consent to or
approval of any subsequent similar act. No custom or practice of either party
shall constitute a waiver of either party's rights to insist upon strict
compliance with the terms hereof.
22. MULTIPLE COUNTERPARTS. This Agreement has been executed in a
number of identical counterparts, each of which, for all purposes, is to be
deemed an original, and all of which constitute, collectively, an agreement;
but in making proof of this Agreement, it shall not be necessary to produce or
account for more than one such counterpart.
IN WITNESS WHEREOF, this Agreement is executed as of the date first
written above.
EMPLOYEE: EMPLOYER:
SNELLING AND SNELLING, INC.
/s/ TIMOTHY LONCHARICH By: /s/ ROBERT O. SNELLING, SR.
- ------------------------------ ------------------------------
Timothy Loncharich Robert O. Snelling, Sr.,
Chairman of the Board
ADDRESS: ADDRESS:
1002 Saddlebrook Drive 12801 N. Central Expressway, Suite 700
Colleyville, Texas 76034 Dallas, Texas 75243
<PAGE> 1
EXHIBIT 10.3
SNELLING AND SNELLING, INC.
LONG TERM INCENTIVE PERFOMANCE BONUS PLAN
FOR TIMOTHY J. LONCHARICH
EXHIBIT A
==========================================
SNELLING AND SNELLING, INC.
12801 NORTH CENTRAL EXPRESSWAY, SUITE 700
DALLAS, TX 75243
TELEPHONE: 239-7575
==========================================
<PAGE> 2
SNELLING AND SNELLING, INC.
LONG-TERM INCENTIVE PERFORMANCE BONUS PLAN
FOR TIMOTHY J. LONCHARICH
1. PURPOSE. In addition to Timothy J. Loncharich's ('Employee')
monthly salary and annual Performance Bonus, Employee will have the
opportunity to earn a Long-Term Incentive Bonus ('Incentive Bonus').
The purpose of the Incentive Bonus is to provide incentive for
Employee to facilitate the growth of Snelling and Snelling, Inc.
('Company'), and through the Incentive Bonus, to share in that growth.
2. DETERMINATION OF INCENTIVE BONUS.
A. The Incentive Bonus shall be based on a Performance Target
Amount ('Target Amount') which will be the greater of:
(1) Seven and one-half (7 1/2) times (x) the
Company's fiscal year net earnings after state
and Federal taxes as set forth in the Company's
audited annual financial statements plus any
accrual for the benefits provided under this
Long-Term Incentive Performance Bonus Plan
adjusted by the tax effect for such accrual,
minus $15,000,000 ('Earnings Target Amount'); or
(2) Two times (x) the Company's book value as set
forth in the Company's audited annual financial
statements minus intangible assets, plus any
accrual for the benefits provided under this
Long-Term Incentive Performance Bonus Plan
adjusted by the tax effect for such accrual,
minus $15,000,000 ("Book Value Target Amount").
Provided, however, if the securities of the Company are
actively traded on the NASDAQ, New York, American, or other
securities exchange, the Target Amount shall be the Traded
Target Amount (herein so called) which shall be the closing
bid price of shares of the Company times (x) the then
issued and outstanding shares of the Company plus any
accrual for the benefits provided under this Long-Term
Incentive Performance Bonus Plan adjusted by the tax effect
for such accrual, minus $15,000,000.
B. The Target Amount shall be determined as of the following
periods or dates:
LONG TERM INCENTIVE SNELLING AND SNELLING, INC.
BONUS PLAN -1- LONCHARICH
<PAGE> 3
(1) Earnings Target Amount shall be based on Company's
after-tax earnings for the Company's 1999 fiscal
year, or other period provided for herein.
(2) Book Value Target Amount shall be based on the
Company's tangible book value as of the final day
of the Company's 1999 fiscal year (the 'Target
Date'), or other date specified herein.
(3) Traded Target Amount shall be determined as of the
Target Date, or if not a trading business day the
first trading business day next preceding the
Target Date, or other date specified herein.
C. Subject to the terms hereof, Employee shall be entitled to
receive as his Incentive Bonus the following:
<TABLE>
<CAPTION>
TARGET AMOUNT BONUS AMOUNT
<S> <C>
Equals or exceeds $50,000,000 5 % x Target Amount x Vested Percentage
Less than $50,000,000 3 % x Target Amount x Vested Percentage
</TABLE>
The Vested Percentage shall be determined pursuant to
Subparagraph D below.
D. Except as otherwise provided herein, the right of Employee to
his Bonus Amount shall be subject to Employee's continuing
employment with the Company and his acquiring a vested
interest in the Bonus Amount. Employee's vested interest in
the Bonus Amount shall be based on Employee's years of
service with the Company and shall increase as follows:
<TABLE>
<CAPTION>
Full Years of Service Vested Percentage
<S> <C>
Less than 1 year 0%
1 or more years of service, but less than 2 years 20%
2 or more years of service, but less than 3 years 40%
3 or more years of service, but less than 4 years 60%
4 or more years of service, but prior to July 30,1999 80%
After July 30, 1999 100%
</TABLE>
A full year of service shall mean service for the Company
during the twelve month period beginning initially on August
1, 1994, and on August 1st of each year thereafter and ending
on July 31st of the succeeding calendar year, during which
period the Employee is employed on a full-time basis by the
Company. Leave of absence approved by the Company shall not
be deemed a cessation of employment for any purposes
hereunder.
LONG TERM INCENTIVE SNELLING AND SNELLING, INC.
BONUS PLAN -2- LONCHARICH
<PAGE> 4
3. COMPANY PUBLICLY TRADED - EARLY ELECTION AUTHORIZED. In the event
Employee is employed on the date that a registration of the Company's
shares goes effective in a firm commitment offering, Employee's
Incentive Bonus shall be 100% vested. Employee may elect to receive
50% of the Bonus Amount determined as of the date the Company's shares
become publicly traded. Employee's election to receive 50 % of the
Bonus Amount must be received by the Company no later than 30 days
after the Company's Board of Directors authorizes the public
registration of the Company's shares. Employee's remaining 50% of the
Bonus Amount shall be determined and paid in the manner provided
herein.
4. MERGER OR SALE. In the event the Company is merged or sold during the
term of Employee's employment, which sale or merger results in 51 % or
more of the Company (stock or assets) being acquired by a non-related
third party, then Employee shall be fully vested and shall be entitled
to receive the 100% of the Bonus Amount. The Bonus Amount shall be
determined based upon the per share value of the consideration paid to
the Company (for its assets) or the Shareholders (for their Company
shares). The Bonus Amount shall be paid commencing on the first day of
the month following the merger or sale in the manner provided in
Paragraph 6B below.
5. INCENTIVE BONUS/EARLY TERMINATION OF EMPLOYMENT. In the event
Employee's employment is terminated prior to July 31, 1999, and such
termination is a result of Employee's death, disability, or
termination by the Company without cause, the Bonus Amount shall be
calculated by determining the Target Amount which shall be determined
from the 12-month period next preceding the month in which termination
of employment occurs for the Earnings Target Amount; the last day of
the month next preceding the month in which termination of employment
occurs for the Book Value Target Amount, and the day of termination of
employment for the Traded Target Amount. For purposes of determining
the Earnings Target Amount and Book Value Target Amount, the
determination shall be made from unaudited financial statements. The
Employee's Bonus Amount so determined shall be paid in the manner
provided in Paragraph 6B below.
6. PAYMENT.
A. TRADED TARGET AMOUNT. If the Bonus Amount is determined using
the 'Traded Target Amount,' then Employee shall be paid his
Incentive Bonus in cash or, in the Company's sole discretion,
in Company securities equivalent in value to the Bonus Amount
(subject to reduction for all taxes). If the Incentive Bonus
is determined as of the Target Date, then it shall be paid on
or before 120 days following that date. If the Incentive
Bonus is paid because of termination of employment prior to
the Target Date, payment shall be made on or before 120 days
following the date termination of employment occurs. In the
event 50% of the Bonus Amount is paid because the Company
becomes publicly traded
LONG TERM INCENTIVE SNELLING AND SNELLING, INC.
BONUS PLAN -3- LONCHARICH
<PAGE> 5
during the term of Employee's employment as provided in
Paragraph 3, then payment shall be made on or before 120 days
following the effective date of the public registration with
Company securities delivered in satisfaction of the Bonus
Amount to be valued at the date of transfer.
B. EARNINGS AND BOOK VALUE TARGET AMOUNT. If the Bonus Amount is
determined from the Earnings Target Amount or Book Value
Target Amount as of the Target Date, Employee shall be paid
his Incentive Bonus in five consecutive annual installments
without interest commencing September 1, 1999 as follows:
<TABLE>
<CAPTION>
PAYMENT DATE: PERCENTAGE:
<S> <C>
September 1, 1999 30%
September 1, 2000 20%
September 1, 2001 20%
September 1, 2002 20%
September 1, 2003 10%
</TABLE>
If the Incentive Bonus is paid pursuant to Paragraph 5,
payment shall begin on the first day of the month next
following 90 days after Employee's termination of employment.
Notwithstanding the foregoing, if the Bonus Amount exceeds
$10,000,000, then $10,000,000 shall be paid in five
consecutive annual installments as provided above and any
excess shall be paid in 10 consecutive equal annual
installments without interest. The Company may prepay all or
any portion of the Incentive Bonus without penalty.
Notwithstanding the foregoing, in the event the Company
shares become publicly traded during the payout period, then
the balance remaining to be paid under this subparagraph B
shall be paid on or before 120 days following the effective
date of the public registration in the manner provided in
subsection A above.
7. DEATH OR DISABILITY OF EMPLOYEE OR BENEFICIARY PRIOR TO RECEIPT OF
ENTIRE AMOUNT OF INCENTIVE BONUS.
A. DEATH. In the event Employee dies prior to receiving the
entire amount of the Incentive Bonus to which he is entitled
hereunder, the balance of the Bonus Amount to which he is
entitled shall be paid to his Beneficiary (hereinafter
defined) or if none is designated then to the legal
representative of his estate.
B. BENEFICIARY. Employee, by written instrument executed by
the Employee and delivered to the Company prior to his death,
may designate a Beneficiary (herein so called) to receive the
Incentive Bonus. If no Beneficiary is designated or survives
the Employee, the Incentive Bonus payments shall be made to
the legal representative of Employee's estate. Employee may
change
LONG TERM INCENTIVE SNELLING AND SNELLING, INC.
BONUS PLAN -4- LONCHARICH
<PAGE> 6
the designation of the Beneficiary at any time by filing a
new written designation of Beneficiary with the Company. No
rights under this Plan shall inure to the Beneficiary until
the death of the Employee. Prior to the death of the
Employee, this Plan may be modified, amended, or terminated
without notice to or consent of the Beneficiary. If the
Beneficiary dies while receiving payments hereunder, the
remaining payments shall be made to Beneficiary's estate.
C. PAYMENT TO BENEFICIARY OR EMPLOYEE UNDER DISABILITY. If the
Company shall receive satisfactory evidence that the Employee
or the Beneficiary, as applicable, is, at the time when a
benefit becomes payable, physically unable or mentally
incompetent to receive such benefit and to give a valid
receipt therefor, the Company may make payment directly to
the Employee or the Beneficiary, as applicable, or to a
relative of Employee or Beneficiary or any individual or
institution having custody of the Employee or the
Beneficiary. The Company shall not be required to see to
the application of any payments so made; and any payments so
made and the receipt by the payee shall be a valid and
complete discharge of the Company's obligation to pay such
benefit.
D. UNCLAIMED BENEFITS. Employee shall keep the Company informed
of his current address and a current address of his
Beneficiary. The Company shall not be obligated to search for
the whereabouts of Employee or Beneficiary. If the location
of the Employee or Beneficiary is not made known to the
Company within six years after the date on which any benefit
payment may be made hereunder, then the Company shall have no
further obligation to pay any benefit hereunder to the
Employee or Beneficiary or any other person and such benefit
shall be irrevocably forfeited.
8. TERMINATION OF BENEFITS. Employee covenants and agrees as a
condition to the performance by the Company of its obligations
hereunder, that during and after his employment with the Company and
as a condition to receiving payments of the Incentive Bonus hereunder
Employee shall not violate the covenants contained in Paragraph 6 of
Employee's Employment Agreement with the Company. In the event that
Employee violates the Covenants of Paragraph 6 of his Employment
Agreement, either during or after his termination of employment with
the Company, then the Company's obligations hereunder to pay the
Incentive Bonus shall terminate and the Company shall have the right
to terminate all payments to Employee and/or his Beneficiary hereunder
and the Company's obligation to make payments of the Incentive Bonus
shall become null and void.
9. SETOFF RIGHTS. The Incentive Bonus payable hereunder shall be subject
to rights of setoff by the Company in the event Employee is indebted
to the Company or breaches any covenant under this Plan, or under any
other agreement with the Company.
LONG TERM INCENTIVE SNELLING AND SNELLING, INC.
BONUS PLAN -5- LONCHARICH
<PAGE> 7
10. LEGAL LIMITATIONS AND BEST EFFORTS. Notwithstanding anything to
the contrary in this Plan, the obligation of the Company to make
payments to the Employee or his Beneficiary, as the case may be, shall
be subject to such limitations and restrictions as may then be imposed
on the Company under any applicable law or governmental regulation.
11. RIGHT TO DISCHARGE. Notwithstanding anything to the contrary herein,
this Plan shall not be construed to be a contract of employment for a
term of years and shall not prevent the Company from exercising its
right to, and the Company hereby reserves such right to discharge the
Employee, with or without cause, except as limited by the terms of any
written employment agreement between the Company and Employee.
12. RIGHT TO OTHER BENEFITS. Nothing contained in this Plan shall be
deemed to exclude the Employee from receiving any supplemental
compensation, bonus, pension, insurance, severance pay or other
benefit or benefits to which he may otherwise become entitled as an
employee of the Company.
13. NO PRE-FUNDING. This Plan at all times shall be entirely unfunded
and no provision shall at any time be made with respect to segregating
any assets of the Company for payment of any benefits hereunder. The
Employee, his Beneficiary, or any other person shall not have any
interest in any particular assets of the Company by reason of the
right to receive a benefit under this Plan and the Employee, his
Beneficiary, or any other person shall have only the rights of a
general unsecured creditor of the Company with respect to any rights
under this Plan. Nothing contained in this Plan shall constitute a
guaranty by the Company or any other entity or person, that the assets
of the Company will be sufficient to pay any benefit hereunder. If the
Company elects to purchase a life insurance contract to provide the
Company with funds to make payments hereunder, the Company shall at
all times be the sole and complete owner and beneficiary of this
insurance and shall have the unrestricted right to use all amounts and
exercise all options and privileges thereunder without the knowledge
or consent of the Employee or any Beneficiary or any other person. It
is expressly agreed that neither the Employee nor any Beneficiary nor
any other person shall have any right, title, or interest whatsoever
in or to any such insurance. If requested by the Company, the Employee
agrees to cooperate in obtaining of any such life insurance.
14. ASSIGNMENT. This Plan and the rights, interests, and benefits
hereunder shall not be assigned, transferred, pledged, sold, conveyed,
or encumbered in any way by the Employee or Beneficiary and shall not
be subject to execution, attachment, or similar process. Any attempted
sale, conveyance, transfer, assignment, pledge, or encumbrance of this
Plan or of such rights, interest, and benefits contrary to the
foregoing or the levy of any attachment or similar process thereupon
shall be null and void and without effect.
LONG TERM INCENTIVE SNELLING AND SNELLING, INC.
BONUS PLAN -6- LONCHARICH
<PAGE> 8
15. WAIVERS AND CONSENTS. One or more waivers of any covenant, term,
or provision of this Plan by any party shall not be construed as a
waiver of a subsequent breach of the same covenant, term, or
provision, nor shall it be considered a waiver of any other then
existing or subsequent breach of a different covenant, term, or
provision. The consent or approval by a party to or of any act by the
other party requiring such consent or approval shall not be deemed to
waive or render unnecessary consent to or approval of any subsequent
similar act. No custom or practice of either party shall constitute a
waiver of either party's rights to insist upon strict compliance with
the terms hereof.
16. ARBITRATION. Any controversy or claim arising out of or relating to
this Plan, shall at the request of any party be determined by
arbitration, under the auspices and rules of the American Arbitration
Association, in accordance with the Texas General Arbitration Act if
applicable, otherwise in accordance with the United States Arbitration
Act. Judgment upon the award rendered by the arbitrator shall be
entered in any court having jurisdiction. The institution and
maintenance of an action for judicial relief or pursuit of a
provisional or ancillary remedy shall not constitute a waiver of the
right of any party to submit the controversy or claim to arbitration.
Nothing contained herein is intended to prevent a party from bringing
an action in state or Federal court in Dallas County, Texas, or such
other county and state in which Employer then has its principal place
of business, to enforce that party's right to arbitrate under this
Agreement. The arbitration shall be commenced by filing a demand for
arbitration upon the other party or parties and the American
Arbitration Association. The arbitrator shall be a person who is
qualified to make decisions in legal matters. The arbitration
proceeding shall be held in Dallas County, Texas, or such other county
and state in which Employer then has its principal place of business.
The arbitrator shall maintain the privacy of the hearings, and shall
have the power to exclude witnesses, other than a party, during the
testimony of any other witness. The prevailing party in the
arbitration proceeding shall be entitled to reasonable attorney's
fees, costs, and necessary expenses incurred in connection with such
proceeding, as determined by the arbitrator.
17. NOTICES. Any notice required or permitted to be given under the Plan
shall be sufficient if in writing, and if (a) delivered personally or
(b) sent by certified or registered mail to the Employee or
Beneficiary at his last known residence address, or in case of notice
to the Company, to the address of its principal office. The notice
shall be deemed to have been received on (a) if delivered personally,
the date of actual receipt by the party entitled thereto or (b) if
mailed as required above, the date of deposit in the United States
mail.
18. INVALID PROVISIONS. If any provision of this Plan is held to be
illegal, invalid, or unenforceable under present or future laws
effective during the term, including renewals, of this Plan, such
provision shall be fully severable; this Plan shall be construed and
enforced as if such illegal, invalid, or unenforceable provision had
never comprised a
LONG TERM INCENTIVE SNELLING AND SNELLING, INC.
BONUS PLAN -7- LONCHARICH
<PAGE> 9
part of this Plan; and the remaining provisions of this Plan shall
remain in full force and effect and shall not be affected by the
illegal, invalid, or unenforceable provision or by its severance from
this Plan. Furthermore, in lieu of each such illegal, invalid, or
unenforceable provision there shall be added automatically as part of
this Plan a provision as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible and be legal, valid, and
enforceable.
19. SUCCESSORS AND ASSIGNS. This Plan shall be binding on and inure to the
benefit of the Company, its successors and assigns, and the Employee,
his heirs and legatees, and his Beneficiary as the case may be;
provided, however, that the Employee, his heirs and legatees, or his
Beneficiary, as the case may be, shall not be entitled to assign any
or all of the Employee's right to payments under this Plan to any
other person or entity.
20. ENTIRETY AND MODIFICATION. This Plan may be terminated, modified,
amended or supplemented in whole or in part at any time by mutual
agreement of the Company and Employee.
21. GOVERNING LAW. This Plan shall be governed by and construed and
enforced in accordance with the laws of the State of Texas.
22: HEADINGS. The headings of the various sections of this Plan have been
inserted for convenient reference only and shall not be construed to
enlarge, diminish or otherwise change the express provisions hereof.
Whenever herein the singular number is used, the same shall include
the plural where appropriate, and words of any gender shall include
each other gender where appropriate.
23. AUTHORIZATION. The Company is authorized to enter into this Plan by
virtue of resolutions duly adopted by unanimous written consent of its
Board of Directors.
24. INCORPORATION BY REFERENCE. The limitation on payments under
this Plan as set forth in Employee's Employment Agreement of even date
herewith are incorporated into this Plan as if fully set forth herein.
LONG TERM INCENTIVE SNELLING AND SNELLING, INC.
BONUS PLAN -8- LONCHARICH
<PAGE> 10
IN WITNESS WHEREOF, the Company and Employee have executed this Plan
effective as of July 26, 1994.
EMPLOYEE: COMPANY:
SNELLING AND SNELLING, INC.
/s/ TIMOTHY J. LONCHARICH /s/ ROBERT O. SNELLING, SR.,
- --------------------------------- -------------------------------------
Timothy J. Loncharich By:
Robert O. Snelling, Sr.,
Chairman of the Board
LONG TERM INCENTIVE SNELLING AND SNELLING, INC.
BONUS PLAN -9- LONCHARICH
<PAGE> 1
EXHIBIT 10.4
AMENDMENT NUMBER ONE TO THE EMPLOYMENT AGREEMENT
BETWEEN
SNELLING AND SNELLING, INC.
AND
TIMOTHY J. LONCHARICH
Effective: August 1, 1994
=========================================
SNELLING AND SNELLING, INC.
12801 NORTH CENTRAL EXPRESSWAY, SUITE 700
DALLAS, TEXAS 75243
TELEPHONE: 239-7575
=========================================
<PAGE> 2
AMENDMENT NUMBER ONE TO THE EMPLOYMENT AGREEMENT
BETWEEN
SNELLING AND SNELLING, INC.
AND
TIMOTHY J. LONCHARICH
Effective: August 1, 1994
This Agreement made this____________________day of August, 1994,
effective as of August 1, 1994, by and between Snelling and Snelling, Inc., a
Pennsylvania corporation (the "Employer") and Timothy J. Loncharich
("Employee").
R E C I T A L S:
A. Employee and Employer entered into an Employment Agreement effective
August 1, 1994.
B. The Employment Agreement provides in Paragraph 15 that it may be
amended.
C. Employer and Employee desire to amend the Employment Agreement.
NOW, THEREFORE, it is agreed that Paragraphs 5B(l)a and b of the
Employment Agreement are amended and restated to read as follows:
a. LEVEL ONE. If Employer's Before Tax
Earnings are 80%-99% of the
Performance Bonus Criteria, the
Performance Bonus shall range
between 25% and 48.75% of
Employee's base salary, determined
on a prorated basis. For example,
if Employer's Before Tax Earnings
are 92% of the Performance Bonus
Criteria, the Performance Bonus
shall equal 40% of Employee's base
salary.
b. LEVEL TWO. If Employer's Before Tax
Earnings are 100 % - 119 % of the
Performance Bonus Criteria, the
Performance Bonus shall range
between 50% and 97.5% of Employee's
base salary, determined on a
prorated basis. For example, if
Employer's Before Tax Earnings are
110% of the Performance Bonus
Criteria, the Performance Bonus
shall equal 75% of Employee's base
salary."
AMENDMENT NUMBER ONE
EMPLOYMENT AGREEMENT -1- LONCHARICH
<PAGE> 3
Except as amended by this Amendment Number One, the Employment
Agreement continues in full force and effect.
Effective as of the day and year first above written.
EMPLOYEE: EMPLOYER:
SNELLING AND SNELLING, INC.
/s/ TIMOTHY J. LONCHARICH By: /s/ ROBERT 0. SNELLING, SR.
- -------------------------------- ------------------------------------
Timothy J. Loncharich Robert 0. Snelling, Sr.,
Chairman of the Board
9-2-94 9-2-94
- -------------------------------- ---------------------------------------
Date Date
ADDRESS: ADDRESS:
1002 Saddlebrook Drive 12801 N. Central Expressway, Suite 700
Colleyville, Texas 76034 Dallas, Texas 75243
AMENDMENT NUMBER ONE
EMPLOYMENT AGREEMENT -2- LONCHARICH
<PAGE> 4
SNELLING AND SNELLING, INC./TIMOTHY J. LONCHARICH
EMPLOYMENT AGREEMENT
<TABLE>
<CAPTION>
Before Tax Performance Before Tax Performance
Earnings* Bonus** Earnings* Bonus**
- ---------- ----------- ---------- -----------
<S> <C> <C> <C>
80% 25% 101% 52.5%
81% 26.25% 102% 55%
82% 27.5% 103% 57.5%
83% 28.75% 104% 60%
84% 30% 105% 62.5%
85% 31.25% 106% 65%
86% 32.5% 107% 67.5%
87% 33.75% 108% 70%
88% 35% 109% 72.5%
89% 36.25% 110% 75%
90% 37.5% 111% 77.5%
91% 38.75% 112% 80%
92% 40% 113% 82.5%
93% 41.25% 114% 85%
94% 42.5% 115% 87.5%
95% 43.75% 116% 90%
96% 45% 117% 92.5%
97% 46.25% 118% 95%
98% 47.5% 119% 97.5%
99% 48.75% 120% 100%
100% 50% + V
1.25% 2.5%
between units between units
</TABLE>
*(Percentage of Performance Bonus Criteria)
**(Percentage of Bonus Salary)
<PAGE> 1
EXHIBIT 10.5
AMENDMENT NUMBER TWO TO THE EMPLOYMENT AGREEMENT
BETWEEN
SNELLING AND SNELLING, INC.
AND
TIMOTHY J. LONCHARICH
Effective: November 1, 1996
=========================================
SNELLING AND SNELLING, INC.
12801 NORTH CENTRAL EXPRESSWAY, SUITE 700
DALLAS, TEXAS 75243
TELEPHONE: 239-7575
=========================================
<PAGE> 2
AMENDMENT NUMBER TWO TO THE EMPLOYMENT AGREEMENT
BETWEEN
SNELLING AND SNELLING, INC.
AND
TIMOTHY J. LONCHARICH
Effective: November 1, 1996
This Agreement made this 4th day of November, 1996, effective as of
November 1, 1996, by and between Snelling and Snelling, Inc., a Pennsylvania
corporation (the "Employer") and Timothy J. Loncharich ("Employee").
R E C I T A L S:
A. Employee and the Employer entered into an Employment Agreement
effective July 26, 1994.
B. Employee and the Employer amended the Employment Agreement effective
August 1, 1994.
C. Pursuant to the provisions of Paragraph 15 of the Employment Agreement
Employee and the Employer desire to amend the Employment Agreement
further.
NOW, THEREFORE, it is agreed that the Employment Agreement hereby is
amended, effective as of November 1, 1996 as follows:
1. Paragraph 5C of the Employment Agreement is amended by
restatement in its entirety to read as follows:
C. STOCK OPTIONS. Employee will be granted options to
purchase 80,000 shares of the Employer's common stock, pursuant to the
terms of the Incentive Stock Option Agreement and the Nonqualified
Stock Option Agreement attached hereto as Exhibit A.
2. The Employment Agreement is hereby amended, effective as
November 1, 1996, to remove each reference therein to the term "LTI Plan".
3. Paragraphs 7, 8G, 9G and subsection (7) of the penultimate
paragraph of Paragraph 8 of the Employment Agreement are hereby amended by
deleting the reference therein to "July 31, 1999" and by substituting in place
of such date "December 31, 2001."
<PAGE> 3
Except as amended by this Amendment Number Two, the Employment
Agreement continues in full force and effect.
EFFECTIVE as of the day and year first above written.
EMPLOYEE: EMPLOYER:
SNELLING AND SNELLING, INC.
/s/ TIMOTHY J. LONCHARICH By: /s/ ROBERT 0. SNELLING, SR.
- -------------------------------- ------------------------------------
Timothy J. Loncharich Robert 0. Snelling, Sr.,
Chairman of the Board
Date 11-4-96 Date 11-4-96
---------------------------- -----------------------------------
ADDRESS: ADDRESS:
1002 Saddlebrook Drive 12801 N. Central Expressway, Suite 700
Colleyville, Texas 76034 Dallas, Texas 75243
AMENDMENT NUMBER TWO
EMPLOYMENT AGREEMENT -2- LONCHARICH
<PAGE> 1
EXHIBIT 10.6
TERMINATION AGREEMENT
This Termination Agreement is entered into by and between Snelling and
Snelling, Inc. (the "Company") and Timothy J. Loncharich (the "Employee") on
this 4th day of November, 1996, effective as of November 1, 1996.
W I T N E S S E T H:
WHEREAS, the Company and the Employee entered into the Snelling and
Snelling, Inc. Long-Term Incentive Performance Bonus Plan (the "LTI Plan"),
effective as of July 26, 1994, in connection with the establishment on July 26,
1994 of an Employment Agreement between the Employee and the Company; and
WHEREAS, the Company has established the Snelling and Snelling, Inc.,
1996 Stock Option Plan (the "Stock Option Plan"); and
WHEREAS, the Company desires to grant options to the Employee to
purchase shares of common stock of the Company under the Stock Option Plan and
the Employee desires to receive a grant of options under the Stock Option Plan;
and
WHEREAS, it is the intent of the Company and the Employee that options
under the Stock Option Plan will replace benefits, if any, under the LTI Plan,
and
WHEREAS, Paragraph 20 of the LTI Plan provides that the LTI Plan may,
among other things, be terminated at any time by the mutual agreement of the
Company and the Employee; and
WHEREAS, the Company and the Employee desire to terminate the LTI
Plan;
NOW, THEREFORE, the Company and the Employee hereby agree as follows:
The Company and the Employee hereby agree to the termination of the
LTI Plan, effective as of November 1, 1996. The Company and the Employee hereby
agree further that Employee shall not be entitled to any benefits under the LTI
Plan, including benefits for periods of employment by the Employee with the
Company prior to November 1, 1996.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written, effective as set forth herein.
EMPLOYEE: COMPANY:
SNELLING AND SNELLING, INC.
/s/ TIMOTHY J. LONCHARICH By: /s/ ROBERT 0. SNELLING, SR.
- -------------------------------- ------------------------------------
Timothy J. Loncharich Robert 0. Snelling, Sr.,
Chairman of the Board
<PAGE> 1
EXHIBIT 10.7
AMENDMENT NUMBER THREE TO THE EMPLOYMENT AGREEMENT
BETWEEN
SNELLING AND SNELLING, INC.
AND
TIMOTHY J. LONCHARICH
Effective October 2, 1997
SNELLING AND SNELLING, INC.
12801 NORTH CENTRAL EXPRESSWAY, SUITE 700
DALLAS, TEXAS 75243
TELEPHONE: (972) 239-7575
<PAGE> 2
AMENDMENT NUMBER THREE TO THE EMPLOYMENT AGREEMENT
BETWEEN
SNELLING AND SNELLING, INC.
AND
TIMOTHY J. LONCHARICH
Effective: October 2, 1997
This Amendment made this 2nd day of October, 1997, by and between
Snelling and Snelling, Inc., a Pennsylvania Corporation (the "Employer") and
Timothy J. Loncharich ("Employee").
RECITALS:
A. Employee and the Employer entered into an Employment Agreement effective
July 26, 1994.
B. Employee and the Employer amended the Employment Agreement effective August
1, 1994 and November 1, 1996.
C. Pursuant to the provisions of Paragraph 15 of the Employment Agreement,
Employee and the Employer desire to amend the Employment Agreement
further.
NOW , THEREFORE it is agreed that the Employment Agreement is amended
effective as of October 2, 1997 as follows:
l. Paragraph 2.A. Positions. is amended by restatement in its
entirety to read as follows:
A. Positions. Employee will serve as President and Chief
Operating Officer of the Employer.
2. Except as amended by this Amendment Number Three, the Employment
Agreement continues in full force and effect.
EFFECTIVE as of the day and year first above written.
EMPLOYEE: EMPLOYER:
SNELLING AND SNELLING, INC.
___________________________ By:________________________________
Timothy J. Loncharich Robert O. Snelling, Sr.
Chairman of the Board and Chief
Executive Officer
____________________________ ____________________________________
Date Date
ADDRESS: ADDRESS:
1002 Saddlebrook Drive 12801 N. Central Expressway, Suite 700
Colleyville, Texas 76034 Dallas, Texas 75243
<PAGE> 1
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
BETWEEN
SNELLING AND SNELLING, INC.
AND
ROBERT O. SNELLING, JR.
Effective: December 1, 1996
<PAGE> 2
EMPLOYMENT AGREEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Employment . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Duties and Functions as Employee . . . . . . . . . . . . . . . 1
A. Positions . . . . . . . . . . . . . . . . . . . . . . . 1
B. General Duties and Functions as Employee . . . . . . . 1
3. Extent of Employee Services . . . . . . . . . . . . . . . . . . 1
4. Satisfaction of Employer . . . . . . . . . . . . . . . . . . . 2
5. Employee's Compensation and Benefits . . . . . . . . . . . . . 2
A. Base Salary . . . . . . . . . . . . . . . . . . . . . . 2
B. Annual Performance Bonus . . . . . . . . . . . . . . . 2
C. Stock Options . . . . . . . . . . . . . . . . . . . . . 4
D. Home Office . . . . . . . . . . . . . . . . . . . . . . 4
E. Other Benefits . . . . . . . . . . . . . . . . . . . . 4
6. Employee Covenants . . . . . . . . . . . . . . . . . . . . . . 4
A. Employee Representations . . . . . . . . . . . . . . . 5
B. Non-Competition . . . . . . . . . . . . . . . . . . . . 7
C. Non-Interference . . . . . . . . . . . . . . . . . . . 7
D. Disclosure of Information . . . . . . . . . . . . . . . 7
E. Return of Records . . . . . . . . . . . . . . . . . . . 8
F. Remedies . . . . . . . . . . . . . . . . . . . . . . . 8
7. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 9
A. Death . . . . . . . . . . . . . . . . . . . . . . . . . 9
B. Disability . . . . . . . . . . . . . . . . . . . . . . 9
C. Mutual Consent . . . . . . . . . . . . . . . . . . . . 10
D. By Employee . . . . . . . . . . . . . . . . . . . . . . 10
E. For "Good Cause" . . . . . . . . . . . . . . . . . . . 10
F. December 31, 2006 . . . . . . . . . . . . . . . . . . . 10
9. Payments upon Termination; Severance . . . . . . . . . . . . . 11
A. Death . . . . . . . . . . . . . . . . . . . . . . . . . 11
B. Disability . . . . . . . . . . . . . . . . . . . . . . 11
C. Mutual Consent . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
EMPLOYMENT AGREEMENT -i-
<PAGE> 3
<TABLE>
<S> <C> <C>
D. By Employee . . . . . . . . . . . . . . . . . . . . . . 11
E. For Good Cause . . . . . . . . . . . . . . . . . . . . 11
F. Expiration of Agreement . . . . . . . . . . . . . . . . 11
G. Additional Benefits . . . . . . . . . . . . . . . . . . 12
H. Change in Control . . . . . . . . . . . . . . . . . . . 12
10. References and Gender . . . . . . . . . . . . . . . . . . . . . 13
11. Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
12. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
13. Insurance; Medical Exam . . . . . . . . . . . . . . . . . . . . 14
14. Invalid Provisions . . . . . . . . . . . . . . . . . . . . . . 14
15. Nonassignability . . . . . . . . . . . . . . . . . . . . . . . 14
16. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 14
17. Laws Governing . . . . . . . . . . . . . . . . . . . . . . . . 14
18. Succession . . . . . . . . . . . . . . . . . . . . . . . . . . 15
19. Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . 15
20. Waivers and Consents . . . . . . . . . . . . . . . . . . . . . 15
21. Multiple Counterparts . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
EMPLOYMENT AGREEMENT -ii-
<PAGE> 4
EMPLOYMENT AGREEMENT
This Agreement made this 30th day of December, 1996, effective as of
December 1, 1996, by and between Snelling and Snelling, Inc., a Pennsylvania
corporation (the "Employer") and Robert O. Snelling, Jr. ("Employee").
R E C I T A L S:
A. Employee desires employment as an Employee of the Employer.
B. The Employer desires to employ Employee under the terms and conditions
hereof.
C. In consideration of the mutual covenants herein contained, the parties
agree as follows:
AGREEMENT
1. EMPLOYMENT. The Employer hereby employs Employee and Employee
hereby accepts such employment upon the terms and conditions of this Agreement.
2. DUTIES AND FUNCTIONS AS EMPLOYEE. Employee is engaged by the
Employer to perform the following duties and functions:
A. POSITIONS. Employee will serve as Senior Vice
President of the Employer.
B. GENERAL DUTIES AND FUNCTIONS AS EMPLOYEE. Employee
agrees to render to Employer his services as Vice Chairman and his duties will
be those customarily performed by persons acting in such capacity of a company
of a size and nature comparable to Employer and those designated by the Chief
Executive Officer or the Board of Directors of the Employer (the "Board")
consistent with the position of Vice Chairman. Employee shall also serve, upon
request and without additional compensation, as an officer or director, or
both, of any subsidiary, division or affiliate of the Employer or any other
entity in which the Employer holds an equity interest.
3. EXTENT OF EMPLOYEE SERVICES. Employee shall devote his full
working time, attention, efforts, and energies to the business and affairs of
the Employer and its affiliated companies. Employee during the term of this
Agreement shall not engage in any other business activity similar to the
Employer's business without the Employer's consent, whether or not that
business activity is pursued for gain, profit, or other pecuniary advantages,
nor shall Employee be interested, directly or indirectly, in any form, fashion,
or manner, as partner, officer, director, stockholder, advisor, employee,
investor, or in any other form or capacity in such other business; provided,
however, that nothing herein contained shall be deemed to prevent or limit the
right of Employee to invest any of his personal funds in securities of any
corporation whose securities are regularly traded on any public exchange or
regulated market of which Employee, after any
EMPLOYMENT AGREEMENT -1-
<PAGE> 5
such investment, owns less than one percent (1%) of any class of such
corporation's outstanding securities. Notwithstanding the foregoing, Employee
may, with the permission of the Board, sit on the boards of corporations
(public and private) and devote time and attention to nonprofit organizations
and academic institutions, provided such activities shall be consistent with
Employee's commitments to the Employer and not affect Employee's performance of
Employee's obligations under this Agreement. During the term of Employee's
employment, Employee's principal residence shall be in Dallas County, Texas, or
a county contiguous thereto.
4. SATISFACTION OF EMPLOYER. Employee agrees that he will
faithfully, promptly, and to the best of his ability, experience, and talent,
perform all of the duties that may be required of and from him pursuant to the
express and implicit terms hereof. Such duties shall be rendered at Dallas,
Texas or a county contiguous thereto (the "Dallas Area"). Employee shall not
be required to travel outside of the Dallas Area with respect to the
performance of his services under this Agreement in excess of 10% of his time
incurred in performing such services.
5. EMPLOYEE'S COMPENSATION AND BENEFITS. For all services
rendered by Employee during his employment hereunder, the Employer shall
compensate Employee as follows:
A. BASE SALARY. During the term of Employee's
employment with Employer pursuant to this Agreement, the Employer shall pay
Employee for his services a minimum annual base salary of $175,000, payable in
accordance with the Employer's payroll practices as in effect from time to
time, and subject to such withholding as is required by law. Employee's base
salary will be reviewed annually and subject to increase at the discretion of
the Board. Employee's annual base salary in effect from time to time,
exclusive of any other compensation hereunder, is hereinafter called "Base
Salary".
B. ANNUAL PERFORMANCE BONUS. In addition to Base
Salary, Employee shall receive an "Annual Performance Bonus" (herein so
called), which shall be the greater of (1) an amount determined by the Board of
Directors of Employer at the end of a fiscal year, or (2) the amount determined
in accordance with the following formulation:
(1) FORMULATION. The Annual Performance Bonus
will be determined from Employer's earnings
before state and federal taxes ("Before Tax
Earnings"). The Board shall each year during
the term of this Agreement establish a
Performance Bonus Criteria (herein so called)
which shall be Employer's budgeted Before Tax
Earnings for that year and which shall not be
less than the Performance Bonus Criteria for
the immediately preceding year.
(a) If Before Tax Earnings are less than
80% of Performance Bonus Criteria,
Employee shall earn no Annual
Performance Bonus. If Before Tax
Earnings are equal to at least 80%
of the Performance Bonus Criteria,
Employee shall earn an
EMPLOYMENT AGREEMENT -2-
<PAGE> 6
Annual Performance Bonus as
determined under Paragraphs
5(B)(1)(b), (c) and (d) below, as
applicable.
(b) If Before Tax Earnings are 80%-99%
of the Performance Criteria,
Employee shall earn an Annual
Performance Bonus in an amount
ranging between 25% and 48.75 % of
Employee's Base Salary, determined
on a prorated basis. For example,
if Before Tax Earnings are 92% of
the Performance Bonus Criteria,
Employee shall earn an Annual
Performance Bonus equal to 40% of
Employee's Base Salary.
(c) If Before Tax Earnings are 100%-119%
of the Performance Criteria,
Employee shall earn an Annual
Performance Bonus in an amount
ranging between 50% and 97.5% of
Employee's Base Salary, determined
on a prorated basis. For example,
if Before Tax Earnings are 110% of
the Performance Criteria, Employee
shall earn an Annual Performance
Bonus equal to 75% of Employee's
Base Salary.
(d) If Before Tax Earnings are 120% or
greater of the Performance Bonus
Criteria, Employee shall earn an
Annual Performance Bonus equal to
100% of Employee's Base Salary, plus
an additional 2% of Employee's Base
Salary for each 1% above 120% of the
Performance Bonus Criteria.
(2) SOURCE OF FINANCIAL INFORMATION AND
CALCULATION. Before Tax Earnings shall be
determined on an accrual basis based on the
Employer's audited annual financial
statements for its fiscal tax year. The
determination of Employer's Before Tax
earnings by the Employer's independent
auditors will be final and binding on all
parties.
(3) MID-YEAR CALCULATION. If employment is
started or terminated during a fiscal year of
the Employer and Employee is entitled to the
Annual Performance Bonus hereunder, the
Annual Performance Bonus determination will
be made at the end of such fiscal year and
prorated based on the number of days Employee
was employed during that year; provided, in
the case of Employee's termination of
employment, Employee in his sole discretion
may elect to determine the Annual Performance
Bonus based on Before Tax
EMPLOYMENT AGREEMENT -3-
<PAGE> 7
Earnings annualized through the last day of
the month preceding the date of Employee's
termination of employment.
(4) PAYMENT. Except as otherwise provided for
herein, the Annual Performance Bonus will be
paid no later than 30 days following the
independent auditor's completion of the
Employer's audited annual financial
statements.
C. STOCK OPTIONS. During Employee's employment under
this Agreement, Employee will be eligible to participate in the Snelling and
Snelling, Inc. 1996 Stock Option Plan or such other stock option plans as may
be adopted by the Employer during the term of this Agreement (the "Stock Option
Plan") at a level specified by the Board, or by a committee designated by the
Board, when the Board (or committee) grants options to employees of the
Employer. The terms of each option granted to Employee will be governed by the
Stock Option Plan and the written option agreement entered into between the
Employer and Employee in accordance with the Stock Option Plan.
D. HOME OFFICE. Upon the request of Employee at any
time during the term of this Agreement, the Employer at its expense will equip
a home office for Employee's use and fulfillment of his duties and functions
hereunder. Such home office will be equipped as determined to be appropriate
by the Employer, and shall include on-line electronic access to the files,
records, internal and external communications and other information appropriate
to assist Employee with the fulfillment of his duties hereunder. Employee
agrees that as soon as practicable following termination of this Agreement, he
shall return any and all equipment requested to be returned by the Employer and
that his on-line access to the Employer's information shall cease.
E. OTHER BENEFITS. The Employer shall, at its expense,
furnish Employee with such other benefits as are from time to time provided by
the Employer for the benefit of its executives generally during the term of
this Agreement, including, without limitation, vacation pay, an automobile
allowance and fees for serving on the Board of Directors in amounts not less
than the previous year. In addition, Employer shall at its expense provide the
Employer with long-term disability insurance and umbrella liability insurance
in amounts as determined by the Board and life insurance of two times
Employee's compensation or such other amount as available to the Employer's
employees under its group term life insurance program. All benefits provided
to Employee shall be subject to the provisions of applicable law. During the
term of this Agreement, the benefits provided to Employee for a particular
year, or the economic equivalent thereof, shall not be less than the benefits
provided to Employee for the immediately preceding year.
6. EMPLOYEE COVENANTS. The parties recognize that the services
to be rendered as an employee under this Agreement by Employee are special,
unique, and of an extraordinary character and, therefore, Employee in
consideration for the employment hereunder makes the following representations
and covenants (the "Covenants") for the benefit of Employer.
EMPLOYMENT AGREEMENT -4-
<PAGE> 8
A. EMPLOYEE REPRESENTATIONS.
(1) PROPRIETARY INFORMATION. Employee is aware
and acknowledges that Employer has developed
a special competence in its Business
(hereinafter defined) and has accumulated
Confidential Information (hereinafter
defined) not generally known to others in the
field which is of unique value in the conduct
and growth of Employer's Business and which
Employer treats as proprietary.
(2) ACCESS TO CONFIDENTIAL INFORMATION. In the
course of Employee's employment, Employee
will be employed in a position or positions
with Employer in which Employee may receive
or contribute to the Confidential Information
of Employer. Employee recognizes the optimum
progress of Employer's Business cannot take
place unless Confidential Information is
entrusted to Employee.
(3) PROTECTION OF GOODWILL. Employee
acknowledges that in the course of carrying
out, performing, and fulfilling his
responsibilities to Employer, Employee has
and will have access to and be entrusted with
Confidential Information relating to
Employer's Business and Clients (hereinafter
defined). Employee recognizes that (i) the
goodwill of Employer depends upon, among
other things, its keeping the Confidential
Information confidential and that
unauthorized disclosure of the Confidential
Information would irreparably damage
Employer, and (ii) disclosure of any
Confidential Information to competitors of
Employer or to the general public would be
highly detrimental to Employer. Employee
further acknowledges that in the course of
performing his obligations to Employer, he
will be a representative of Employer to many
of Employer's Clients and in some instances
Employer's primary contact with the Client,
and as such will be responsible for
maintaining or enhancing the business and
goodwill of Employer with those Clients.
(4) MEANINGS OF TERMS. Employee acknowledges
that the following terms shall have the
following meanings:
a. BUSINESS shall mean Employer's
present business of providing
personnel services, including but
not limited to, temporary help
services, employee placement,
employee search, employee leasing,
and as such business may be expanded
and diversified in the future
through acquisitions by Employer or
future development or
diversification, including any
business which Employer has targeted
or
EMPLOYMENT AGREEMENT -5-
<PAGE> 9
discussed to be targeted by officers
or board members for acquisition or
entry during the Restricted Period
(as defined below).
b. EMPLOYER shall refer to Snelling and
Snelling, Inc. and its subsidiaries
and any other business or entity in
which Employer has or acquires an
equity interest.
c. CLIENTS means any individual,
principal, proprietorship,
partnership, corporation,
association, or other entity that
has been served by Employer as a
customer or franchise during the
term of Employee's employment,
including those who were (or became)
Client(s) of Employer at the time of
(or at any time during) Employee's
employment.
d. COMPETING BUSINESS means any
business, firm, undertaking,
company, or organization, other than
Employer, which competes in any
state in the United States in which
the Employer's business is located
(the "Restricted Area") with
Employer's Business.
e. CONFIDENTIAL INFORMATION means
information disclosed to or known to
Employee as a direct or indirect
consequence of, or through his
employment with Employer, about
Employer's business methods,
operations, and services, including,
but not limited to, all information,
written or oral, including without
limitation, manuals, videos, audios,
and internal publications not
generally known, or proprietary to
Employer, about Employer's
manufacturing, marketing, pricing,
accounting, merchandising, and
information gathering techniques and
methods, and all accumulated data,
listings, or similar recorded matter
used or useful in Employer's
Business, including but not limited
to, Employer's Client lists,
Employer's franchisees' Client
lists, reports, business forms,
advertisements, and marketing
reports and presentation materials.
Without regard to whether any or all
of the foregoing matters would be
deemed confidential, material, or
important, the parties hereto
stipulate that as between them, the
same are important, material, and
confidential and gravely affect the
effective and successful conduct of
the business of the Employer, and
its goodwill.
EMPLOYMENT AGREEMENT -6-
<PAGE> 10
B. NON-COMPETITION. Employee agrees that during his
employment with Employer, Employee shall not within the Restricted Area, either
through any kind of ownership (other than ownership of securities any
corporation whose securities are regularly traded on any public exchange or
regulated market of which Employee owns less than one percent (1 %) of any
class of such corporation's outstanding securities), or as a director, officer,
principal, agent, employee, employer, advisor, consultant, co-partner, or in
any individual or representative capacity whatsoever, either for Employee's own
benefit or for the benefit of any other person or firm, partnership,
association, corporation, or other entity, without the prior written consent of
Employer, participate, directly or indirectly, in a Competing Business
involving any Client.
C. NON-INTERFERENCE. During his employment with the
Employer and for a period of thirty-six (36) months after the termination of
his employment, irrespective of the time, manner, or cause of his termination,
Employee shall not:
(1) SOLICITATION. Directly or indirectly, either
as principal, agent, employee, employer,
stockholder, co-partner, or in any other
individual or representative capacity
whatsoever induce, solicit, or attempt to
induce or solicit any existing Client or
induce, solicit or attempt to induce or
solicit any existing Client to terminate its
relationship with Employer, either for
Employee's own benefit or for the benefit of
any other person, firm, or corporation
competitive with that of the Employer.
(2) SOURCES. Directly or indirectly, request or
advise any present or future merchandise
resource, supply resource, financial
resource, or service resource of the Employer
or any existing Client to withdraw, curtail,
or cancel the furnishing or sales of
merchandise, supplies, or services to the
Employer or any existing Client.
(3) EMPLOYEES. Directly or indirectly, induce or
attempt to influence any employee of the
Employer or employee of any existing Client
to terminate employment with the Employer or
the existing Client, as the case may be, or
hire any former employee of the Employer who
has resigned.
D. DISCLOSURE OF INFORMATION. Unless compelled to
disclose information in a legal proceeding, Employee expressly covenants and
agrees that he will not, during or after the termination of his employment with
the Employer, irrespective of the time, manner or cause of the termination,
directly or indirectly use, disclose, copy, or assist any other person or firm
in the use, disclosure, or copying of, any Confidential Information, except
with the written consent of or at the written request of Employer.
EMPLOYMENT AGREEMENT -7-
<PAGE> 11
E. RETURN OF RECORDS. Upon termination of his
employment, Employee will surrender to the Employer all lists, books, and
records of or in connection with the Employer's Clients, customers, suppliers,
prospective customers, or businesses and all copies thereof and all other
property belonging to the Employer, whatsoever, including, without limitation,
all Confidential Information. Employee shall have no right to copy or
otherwise reproduce lists, books or accounts, records or other property of the
Employer.
F. REMEDIES.
(1) ENFORCEMENT OF COVENANTS. Employee agrees
that a violation on his part of any Covenant
in this Paragraph 6 will cause such damage to
the Employer as will be irreparable and for
that reason, Employee further agrees that the
Employer shall be entitled, as a matter of
right, to an injunction out of any court of
competent jurisdiction, restraining any
further violation of the Covenants by
Employee, his employer, employees, partners,
or agents. In addition to the foregoing
remedy, in the event of a violation by
Employee of any Covenant in this Paragraph 6,
Employee shall be liable to the Employer for
actual damages. Such right to injunction and
actual damages shall be cumulative and in
addition to whatever other remedies the
Employer may have.
(2) INDEPENDENT COVENANTS. Each of the Covenants
contained in this Paragraph 6 shall be
construed as covenants or agreements
independent of any other provision of this
Paragraph 6 of this Agreement and the
allegation or existence of any claim or cause
of action of Employee against the Employer,
whether predicated on this Agreement or
otherwise, shall not constitute a defense to
the enforcement by the Employer of the
Covenants contained herein.
(3) INTERPRETATION. It is the intent of the
parties that the provisions contained in
Paragraph 6 shall, to the fullest extent
permissible under law and public policy, be
enforced by the courts of each state and
jurisdiction in which enforcement is sought
and that the unenforceability (or the
modification necessary to conform with such
law and public policy) of any part of
Paragraph 6 shall not be deemed to render
unenforceable any other part of Paragraph 6.
Accordingly, if any part of Paragraph 6 shall
be adjudicated to be invalid or unenforceable
in any action or proceeding in which
Employee, his heirs, executors,
administrators and the Employer, its
successors, or assigns, are parties, whether
in its entirety or except as modified as to
duration, territory, accounts, employees, or
otherwise, then that part shall be deemed
deleted or amended, as the case may be, from
the Agreement in order to render the
EMPLOYMENT AGREEMENT -8-
<PAGE> 12
remainder of Paragraph 6 both valid and
enforceable. Any such deletion or amendment
shall apply only where the court rendering
the same has jurisdiction.
(4) SURVIVAL. Notwithstanding any provision in
this Agreement to the contrary, the
representations of Employee contained in
Paragraph 6A and the rights of the Employer
hereunder relating to such representations
shall not terminate upon the termination of
this Agreement but shall continue to remain
in full force and effect for a period of
thirty-six (36) months after the termination
of Employee's employment with the Employer,
irrespective of the time, manner or cause of
his termination.
(5) NOTICE REQUIRED. Employee expressly agrees
to notify any prospective employer or
affiliate in a Competing Business of the
Covenants, and authorizes Employer to make
contact with, and discuss the nature and
obligations of these Covenants with, any
person or affiliate reasonably believed by
Employer to be engaged or about to be engaged
in an act that would constitute a violation
of the Covenants. Employee hereby waives and
releases Employer from, any claims whatsoever
arising in connection with Employer's contact
or discussions with such person or affiliate.
7. TERM. Subject to the provisions for termination as provided
elsewhere herein the term of Employee's employment under this Agreement shall
commence on December 1, 1996, and terminate on December 31, 2006.
8. TERMINATION. Notwithstanding anything herein contained to the
contrary (including Paragraph 7 hereof), this Agreement shall terminate upon
the first to occur of any of the following events:
A. DEATH. Upon the death of Employee.
B. DISABILITY. Upon the final and binding determination
of disability of Employee, whether by mutual agreement or in accordance with
the procedures set forth in this Subparagraph 8B. For purposes of this
Agreement, Employee shall be subject to a "disability" when he is unable to
continue substantially all of his normal duties of employment by reason of a
physical or mental impairment. In determining whether Employee is subject to a
disability, Employer's determination shall be based upon the opinion of any
licensed physician of the appropriate recognized field of medicine or
psychiatric practice who has examined Employee and who agrees and opines that
the Employee is disabled; provided, however, if Employee disagrees with such
determination, then Employee and Employer shall agree upon an independent
qualified physician to review the case and make a final determination of
disability. If the parties cannot agree upon an independent physician to make
such determination, then each party shall appoint
EMPLOYMENT AGREEMENT -9-
<PAGE> 13
a physician and those two physicians shall select a third physician who shall
then make a final and binding determination with respect to Employee's
disability.
C. MUTUAL CONSENT. By mutual written consent of the
parties.
D. BY EMPLOYEE. By Employee by giving 30 days' written
notice of termination to Employer.
E. FOR "GOOD CAUSE". By Employer upon written notice
for "good cause," which shall mean for purposes of this Agreement, Employee's
(i) conviction of a felony or any other criminal act which the Board considers
materially damaging to the reputation of the Employer, (ii) conviction of
fraud, (iii) conviction of dishonesty, self- dealing, or embezzlement, (iv)
willful and intentional violation of Employer's published policies, (v) gross
or intentional neglect of duty, or (vi) failure or unwillingness to perform
substantially and faithfully Employee's duties hereunder (other than a failure
due to Employee's disability); provided, however, in the event "good cause"
relates to items (iv) through (vi) above, then Employer shall notify Employee
of such cause, and, if such violation can be cured, Employee shall have 30 days
from receipt of notice to cure such violation.
F. DECEMBER 31, 2006.
The effective date of termination under the foregoing provisions shall be as
follows:
(1) PARAGRAPH 8A, the date of death.
(2) PARAGRAPH 8B, the date of written notice from
the Employer to Employee of his "disability"
termination.
(3) PARAGRAPH 8C, the date determined under the
written mutual consent of the parties.
(4) PARAGRAPH 8D, the termination date as
provided in Employee's written notice;
provided that the Employer may accelerate the
termination so that it occurs at any time
during the 30-day notice period, while
continuing Employee's Base Salary for the
remainder of the 30-day notice period.
(5) PARAGRAPH 8E, the termination shall be
immediate upon the delivery by Employer of
written notice or the end of the cure period
if cure is possible but is not effected.
(6) PARAGRAPH 8F, December 31, 2006.
EMPLOYMENT AGREEMENT -10-
<PAGE> 14
Notwithstanding the foregoing, Employer may terminate Employee's use of
Employer's offices, equipment and supplies at any time after notice of
termination of employment is given by Employer or Employee.
9. PAYMENTS UPON TERMINATION; SEVERANCE.
A. DEATH. In the event termination of employment is the
result of death under Paragraph 8A above, Employee shall be paid his Base
Salary through the end of the month in which death occurred; Employee's Annual
Performance Bonus will be determined through the last day of the month
preceding the month in which death occurs in accordance with the provisions of
Paragraph 5B(3); and the right of Employee's representative to exercise stock
options, if any, will be determined in accordance with the terms of the Stock
Option Plan.
B. DISABILITY. In the event of termination of
employment for disability under Paragraph 8B above, Employee shall be paid his
Base Salary through the date of termination of employment; Employee's Annual
Performance Bonus will be determined through the last day of the month
preceding the month in which the termination of employment occurs in accordance
with the provisions of Paragraph 5B(3); and the right of Employee or Employee's
representative to exercise stock options, if any, will be determined in
accordance with the terms of the Stock Option Plan.
C. MUTUAL CONSENT. If termination of employment is by
mutual consent under Paragraph 8C above, the parties shall agree to the
payments to be made, if any, to Employee upon such termination.
D. BY EMPLOYEE. In the event of termination of
employment by Employee under Paragraph 8D, Employee shall be paid his Base
Salary through the date of termination of employment. Employee's Annual
Performance Bonus will be determined through the last day of the month
preceding the date of termination of his employment in accordance with the
provisions of Paragraph 5B(3). Employee's right to exercise stock options, if
any, will be determined in accordance with the terms of the Stock Option Plan.
E. FOR GOOD CAUSE. In the event of a termination of
employment for good cause under Paragraph 8E, Employee will be entitled to
receive his Base Salary through the date of termination of employment.
Employee will not be entitled to receive any Annual Performance Bonus or to
exercise any unexercised stock options under the Stock Option Plan.
F. EXPIRATION OF AGREEMENT. In the event of termination
of employment in connection with the termination of the Agreement under
Paragraph 8F, Employee shall be paid his Base Salary and Annual Performance
Bonus through December 31, 2006, and will be entitled to exercise stock
options, if any, under the terms of the Stock Option Plan.
EMPLOYMENT AGREEMENT -11-
<PAGE> 15
G. ADDITIONAL BENEFITS. In the event Employer
terminates Employee's employment prior to the date set forth in Paragraph 8F,
other than for good cause under Paragraph 8E, Employee will be entitled to
receive, in addition to other amounts, if any, payable to Employee under this
Agreement, a severance benefit in an amount equal to three times his Base
Salary and Annual Performance Bonus paid by Employer during the twelve month
period immediately preceding his termination of employment, reduced by the Base
Salary and Annual Performance Bonus payments, if any, payable to Employee under
other provisions of this Agreement or a result of Employee's termination of
employment.
H. CHANGE IN CONTROL.
(1) Notwithstanding anything else stated in this
Paragraph 9, if (A) a Change in Control, as
defined in subparagraph H(2), occurs during
the term of this Agreement, and (B) if on or
at any time during the two-year period
immediately following a Change in Control,
the Employee's employment with the Employer
is terminated, either:
(i) by the Company for any reason other
than the occurrence of one of the
events set forth in Subparagraphs
8A, 8B, 8C, 8E or 8F; or
(ii) by the Employee as the result of and
on or before the expiration of 60
days following: (a) a significant
reduction by the Employer of
Employee's job responsibilities with
the Employer, or (b) a reduction by
the Employer of Employee's Base
Salary as in effect immediately
prior to the Change in Control, or
(c) because of a move of Employee's
job location by more than 25 miles;
then the Employer shall pay to the Employee, within 30 days after the effective
date of Employee's termination of employment, an amount equal to three times
Employee's Base Salary and three times a pro rata portion of Employee's Annual
Performance Bonus determined through the date of termination of employment, and
the Employer shall take such actions as are lawfully permitted to have all
options to purchase shares under the Stock Option Plan that are not then
exercisable, become immediately exercisable. The Employer may withhold from
such payment any federal, state, city, county or other taxes. If amounts paid
pursuant to this paragraph 9H become subject to the excise tax (the "Excise
Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as
amended, the Employer shall pay to Employee an additional amount such that the
net amount retained by Employee, after deduction of any Excise Tax on the
amounts payable under this Paragraph 9H, shall be equal to the full amount
payable under this Paragraph 9H with regard to the Excise Tax.
(2) "Change in Control" for purposes of this
Paragraph means the first to occur of any of
the following events:
EMPLOYMENT AGREEMENT -12-
<PAGE> 16
(A) the effective date of any
transaction or series of
transactions (other than a
transaction to which only the
Employer and one or more of its
subsidiaries are parties) pursuant
to which (i) the Employer becomes a
subsidiary of another corporation,
or (ii) Employer is merged or
consolidated with, or assets or more
than 51% of the outstanding voting
securities of the Employer are sold
to or acquired by, another person,
another corporation or another group
of associated persons acting in
concert; provided, however, that for
purposes of this subparagraph
H(2)(A), in the case of a "series of
transactions" as described herein,
the effective date of the final
transaction shall be deemed to be
the date of the final transaction
upon which one of the results set
forth above occurs; or
(B) the date upon which any person,
corporation or group of associated
persons acting in concert, excluding
any persons or groups who have then
been directors, officers or holders
of greater than five percent of the
outstanding voting securities of the
Employer for a continuous period of
at least five years, become a direct
or indirect beneficial owner of
voting securities of the Employer
representing an aggregate of more
than 20% of the votes then entitled
to be cast at an election of the
Employer's Board of Directors; or
(C) the date upon which the persons who
were members of the Employer's Board
of Directors, as of the effective
date of this Agreement (the
"Original Directors"), cease to
constitute a majority of the Board
of Directors; provided, however,
that any new director whose
nomination or selection has been
approved by the affirmative vote of
at least a majority of the Original
Directors then in office shall also
be deemed an Original Director.
Except for the foregoing payments, Employee shall not be entitled to receive
any other benefits except as may be required by law.
10. REFERENCES AND GENDER. All references to "paragraphs" or
"subparagraphs" contained herein are, unless specifically indicated otherwise,
references to paragraphs or subparagraphs of this Agreement. Whenever herein
the singular number is used, the same shall include the plural where
appropriate, and words of any gender shall include each other gender where
appropriate. The terms "herein" and "hereof" as used in this Agreement are
references to this Agreement, unless the context indicates otherwise.
EMPLOYMENT AGREEMENT -13-
<PAGE> 17
11. CAPTIONS. The captions, headings, and arrangements used in
this Agreement are for convenience only and do not in any way affect, limit,
amplify, or modify the terms and provisions hereof.
12. NOTICES. Whenever this Agreement requires or permits any
consent, approval, notice, request, or demand from one party to another, the
consent, approval, notice, request, or demand must be in writing to be
effective, including, without limitation, telex, or telegraphic communications,
and shall be deemed to have been given on the earlier of receipt or the third
day after it is enclosed in an envelope, addressed to the Employee at the
address set forth for the Employee on the payroll records of the Employer and
to the Employer at the address stated below or at such other address as the
Employer may designate for all purposes as its corporate headquarters, properly
stamped, sealed, and deposited in the United States mail. The address of
Employer as of the effective date of this Agreement is as set forth on the
signature page hereof.
13. INSURANCE; MEDICAL EXAM. Employee agrees to take a physical
examination to be performed by a medical doctor selected by the Employer. The
cost of such exam will be borne by the Employer. During the term of this
Agreement, Employee shall be required as a condition of employment to take an
annual physical exam at the expense of the Employer. In addition, Employee
agrees to take such physical examinations as may be required by the Employer in
order for the Employer to purchase insurance on Employee's life in such amount
or amounts as the Employer deems appropriate.
14. INVALID PROVISIONS. If any provision of this Agreement is
held to be illegal, invalid, or unenforceable under present or future laws
effective during the term, including renewals, of this Agreement, such
provision shall be fully severable; this Agreement shall be construed and
enforced as if such illegal, invalid, or unenforceable provision had never
comprised a part of this Agreement; and the remaining provisions of this
Agreement shall remain in full force and effect and shall not be affected by
the illegal, invalid, or unenforceable provision or by its severance from this
Agreement. Furthermore, in lieu of each such illegal, invalid, or
unenforceable provision there shall be added automatically as part of this
Agreement a provision as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible and be legal, valid, and
enforceable.
15. NONASSIGNABILITY. Neither this Agreement, nor any rights or
obligations of either party hereunder may be transferred or assigned except
that the Employer may assign this entire Agreement to any successor to all or
substantially all of the Employer's business and assets.
16. ENTIRE AGREEMENT. This Agreement contains the entire
agreement of the parties hereto. No modification or amendment of any of the
terms, conditions, or provisions herein may be made otherwise than by written
agreement signed by the parties hereto, or in any event by the parties sought
to be bound hereby.
17. LAWS GOVERNING. THIS AGREEMENT SHALL BE CONSTRUED AND
INTERPRETED ACCORDING TO THE LAWS OF THE STATE OF TEXAS.
EMPLOYMENT AGREEMENT -14-
<PAGE> 18
18. SUCCESSION. This Agreement shall inure to the benefit of and
be binding upon the parties hereto, and upon their successors in interest of
any kind whatsoever.
19. ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement, including but not limited to claims based on or
arising from an alleged tort, shall at the request of any party be determined
by arbitration, under the auspices and rules of the American Arbitration
Association, in accordance with the Texas General Arbitration Act if
applicable, otherwise in accordance with the United States Arbitration Act.
Judgment upon the award rendered by the arbitrator shall be entered in any
court having jurisdiction. The institution and maintenance of an action for
judicial relief or pursuit of a provisional or ancillary remedy shall not
constitute a waiver of the right of any party to submit the controversy or
claim to arbitration. Nothing contained in this paragraph is intended to
prevent a party from bringing an action in State or Federal court in Dallas
County, Texas, or such other county and state in which Employer then has its
principal place of business, to (i) enforce that party's right to arbitrate
under this Agreement or (ii) to obtain relief by way of Specific Performance to
enforce the Covenants contained in Paragraph 6 hereof. The arbitration shall
be commenced by filing a demand for arbitration upon the other party or parties
and the American Arbitration Association. The arbitrator shall be a person who
is qualified to make decisions in legal matters. The arbitration proceeding
shall be held in Dallas County, Texas. The arbitrator shall maintain the
privacy of the hearings, and shall have the power to exclude witnesses, other
than a party, during the testimony of any other witness. The prevailing party
in the arbitration proceeding shall be entitled to reasonable attorney's fees,
costs, and necessary expenses incurred in connection with such proceeding, as
determined by the arbitrator.
20. WAIVERS AND CONSENTS. One or more waivers of any covenant,
term, or provision of this Agreement by any party shall not be construed as a
waiver of a subsequent breach of the same covenant, term, or provision, nor
shall it be considered a waiver of any other then existing or subsequent breach
of a different covenant, term, or provision. The consent or approval by either
party to or of any act by the other party requiring such consent or approval
shall not be deemed to waive or render unnecessary consent to or approval of
any subsequent similar act. No custom or practice of either party shall
constitute a waiver of either party's rights to insist upon strict compliance
with the terms hereof.
21. MULTIPLE COUNTERPARTS. This Agreement has been executed in a
number of identical counterparts, each of which, for all purposes, is to be
deemed an original, and all of which constitute, collectively, an agreement;
but in making proof of this Agreement, it shall not be necessary to produce or
account for more than one such counterpart.
(The signature page is the next following page)
EMPLOYMENT AGREEMENT -15-
<PAGE> 19
IN WITNESS WHEREOF, this Agreement is executed as of the date first
written above.
EMPLOYEE: EMPLOYER:
SNELLING AND SNELLING, INC.
/s/ ROBERT O. SNELLING, JR. By: /s/ ROBERT O. SNELLING, SR.
- ----------------------------- ---------------------------------
Robert O. Snelling, Jr. Robert O. Snelling, Sr.
Chairman of the Board
ADDRESS: ADDRESS:
1305 Savannah Drive 12801 N. Central Expressway
Plano, TX 75093 Suite 700
Dallas, Texas 75243
EMPLOYMENT AGREEMENT -16-
<PAGE> 1
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
BETWEEN
SNELLING AND SNELLING, INC.
AND
J. RUSSELL CREWS
Effective: December 1, 1996
<PAGE> 2
EMPLOYMENT AGREEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Employment . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Duties and Functions as Employee . . . . . . . . . . . . . . . 1
A. Positions . . . . . . . . . . . . . . . . . . . . . . . 1
B. General Duties and Functions as Employee . . . . . . . 1
3. Extent of Employee Services . . . . . . . . . . . . . . . . . . 1
4. Satisfaction of Employer . . . . . . . . . . . . . . . . . . . 2
5. Employee's Compensation and Benefits . . . . . . . . . . . . . 2
A. Base Salary . . . . . . . . . . . . . . . . . . . . . . 2
B. Annual Performance Bonus . . . . . . . . . . . . . . . 2
C. Stock Options . . . . . . . . . . . . . . . . . . . . . 4
D. Home Office . . . . . . . . . . . . . . . . . . . . . . 4
E. Other Benefits . . . . . . . . . . . . . . . . . . . . 4
6. Employee Covenants . . . . . . . . . . . . . . . . . . . . . . 4
A. Employee Representations . . . . . . . . . . . . . . . 5
B. Non-Competition . . . . . . . . . . . . . . . . . . . . 7
C. Non-Interference . . . . . . . . . . . . . . . . . . . 7
D. Disclosure of Information . . . . . . . . . . . . . . . 7
E. Return of Records . . . . . . . . . . . . . . . . . . . 8
F. Remedies . . . . . . . . . . . . . . . . . . . . . . . 8
7. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 9
A. Death . . . . . . . . . . . . . . . . . . . . . . . . . 9
B. Disability . . . . . . . . . . . . . . . . . . . . . . 9
C. Mutual Consent . . . . . . . . . . . . . . . . . . . . 10
D. By Employee . . . . . . . . . . . . . . . . . . . . . . 10
E. For "Good Cause" . . . . . . . . . . . . . . . . . . . 10
F. December 31, 2006 . . . . . . . . . . . . . . . . . . . 10
</TABLE>
EMPLOYMENT AGREEMENT -i-
<PAGE> 3
<TABLE>
<S> <C> <C>
9. Payments upon Termination; Severance . . . . . . . . . . . . . 11
A. Death . . . . . . . . . . . . . . . . . . . . . . . . . 11
B. Disability . . . . . . . . . . . . . . . . . . . . . . 11
C. Mutual Consent . . . . . . . . . . . . . . . . . . . . 11
D. By Employee . . . . . . . . . . . . . . . . . . . . . . 11
E. For Good Cause . . . . . . . . . . . . . . . . . . . . 11
F. Expiration of Agreement . . . . . . . . . . . . . . . . 11
G. Additional Benefits . . . . . . . . . . . . . . . . . . 11
H. Change in Control . . . . . . . . . . . . . . . . . . . 12
10. References and Gender . . . . . . . . . . . . . . . . . . . . . 13
11. Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
12. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
13. Insurance; Medical Exam . . . . . . . . . . . . . . . . . . . . 14
14. Invalid Provisions . . . . . . . . . . . . . . . . . . . . . . 14
15. Nonassignability . . . . . . . . . . . . . . . . . . . . . . . 14
16. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 14
17. Laws Governing . . . . . . . . . . . . . . . . . . . . . . . . 14
18. Succession . . . . . . . . . . . . . . . . . . . . . . . . . . 15
19. Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . 15
20. Waivers and Consents . . . . . . . . . . . . . . . . . . . . . 15
21. Multiple Counterparts . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
EMPLOYMENT AGREEMENT -ii-
<PAGE> 4
EMPLOYMENT AGREEMENT
This Agreement made this 30th day of December 1996, effective as of
December 1, 1996, by and between Snelling and Snelling, Inc., a Pennsylvania
corporation (the "Employer") and J. Russell Crews ("Employee").
R E C I T A L S:
A. Employee desires employment as an Employee of the Employer.
B. The Employer desires to employ Employee under the terms and conditions
hereof.
C. In consideration of the mutual covenants herein contained, the parties
agree as follows:
AGREEMENT
1. EMPLOYMENT. The Employer hereby employs Employee and Employee
hereby accepts such employment upon the terms and conditions of this Agreement.
2. DUTIES AND FUNCTIONS AS EMPLOYEE. Employee is engaged by the
Employer to perform the following duties and functions:
A. POSITIONS. Employee will serve as Senior Vice President
of the Employer.
B. GENERAL DUTIES AND FUNCTIONS AS EMPLOYEE. Employee agrees
to render to Employer his services as Senior Vice President and his duties will
be those customarily performed by persons acting in such capacity of a company
of a size and nature comparable to Employer and those designated by the Chief
Executive Officer or the Board of Directors of the Employer (the "Board")
consistent with the position of Senior Vice President. Employee shall also
serve, upon request and without additional compensation, as an officer or
director, or both, of any subsidiary, division or affiliate of the Employer or
any other entity in which the Employer holds an equity interest.
3. EXTENT OF EMPLOYEE SERVICES. Employee shall devote his full
working time, attention, efforts, and energies to the business and affairs of
the Employer and its affiliated companies. Employee during the term of this
Agreement shall not engage in any other business activity similar to the
Employer's business without the Employer's consent, whether or not that
business activity is pursued for gain, profit, or other pecuniary advantages,
nor shall Employee be interested, directly or indirectly, in any form, fashion,
or manner, as partner, officer, director, stockholder, advisor, employee,
investor, or in any other form or capacity in such other business; provided,
however, that nothing herein contained shall be deemed to prevent or limit the
right of Employee to invest any of his personal funds in securities of any
corporation whose securities
EMPLOYMENT AGREEMENT -1-
<PAGE> 5
are regularly traded on any public exchange or regulated market of which
Employee, after any such investment, owns less than one percent (1%) of any
class of such corporation's outstanding securities. Notwithstanding the
foregoing, Employee may, with the permission of the Board, sit on the boards of
corporations (public and private) and devote time and attention to nonprofit
organizations and academic institutions, provided such activities shall be
consistent with Employee's commitments to the Employer and not affect
Employee's performance of Employee's obligations under this Agreement. During
the term of Employee's employment, Employee's principal residence shall be in
Dallas County, Texas, or a county contiguous thereto.
4. SATISFACTION OF EMPLOYER. Employee agrees that he will
faithfully, promptly, and to the best of his ability, experience, and talent,
perform all of the duties that may be required of and from him pursuant to the
express and implicit terms hereof. Such duties shall be rendered at Dallas,
Texas or a county contiguous thereto (the "Dallas Area"). Employee shall not
be required to travel outside of the Dallas Area with respect to the
performance of his services under this Agreement in excess of 10% of his time
incurred in performing such services.
5. EMPLOYEE'S COMPENSATION AND BENEFITS. For all services rendered
by Employee during his employment hereunder, the Employer shall compensate
Employee as follows:
A. BASE SALARY. During the term of Employee's employment with
Employer pursuant to this Agreement, the Employer shall pay Employee for his
services a minimum annual base salary of $175,000, payable in accordance with
the Employer's payroll practices as in effect from time to time, and subject to
such withholding as is required by law. Employee's base salary will be
reviewed annually and subject to increase at the discretion of the Board.
Employee's annual base salary in effect from time to time, exclusive of any
other compensation hereunder, is hereinafter called "Base Salary".
B. ANNUAL PERFORMANCE BONUS. In addition to Base Salary,
Employee shall receive an "Annual Performance Bonus" (herein so called), which
shall be the greater of (1) an amount determined by the Board of Directors of
Employer at the end of a fiscal year, or (2) the amount determined in
accordance with the following formulation:
(1) FORMULATION. The Annual Performance Bonus will be
determined from Employer's earnings before state and
federal taxes ("Before Tax Earnings"). The Board
shall each year during the term of this Agreement
establish a Performance Bonus Criteria (herein so
called) which shall be Employer's budgeted Before
Tax Earnings for that year and which shall not be
less than the Performance Bonus Criteria for the
immediately preceding year.
(a) If Before Tax Earnings are less than 80% of
Performance Bonus Criteria, Employee shall
earn no Annual Performance Bonus. If Before
Tax Earnings are equal to at least 80% of the
Performance Bonus Criteria, Employee shall
earn an
EMPLOYMENT AGREEMENT -2-
<PAGE> 6
Annual Performance Bonus as determined under
Paragraphs 5(B)(1)(b), (c) and (d) below, as
applicable.
(b) If Before Tax Earnings are 80%-99% of the
Performance Criteria, Employee shall earn an
Annual Performance Bonus in an amount ranging
between 25% and 48.75 % of Employee's Base
Salary, determined on a prorated basis. For
example, if Before Tax Earnings are 92% of
the Performance Bonus Criteria, Employee
shall earn an Annual Performance Bonus equal
to 40% of Employee's Base Salary.
(c) If Before Tax Earnings are 100%-119% of the
Performance Criteria, Employee shall earn an
Annual Performance Bonus in an amount ranging
between 50% and 97.5% of Employee's Base
Salary, determined on a prorated basis. For
example, if Before Tax Earnings are 110% of
the Performance Criteria, Employee shall earn
an Annual Performance Bonus equal to 75% of
Employee's Base Salary.
(d) If Before Tax Earnings are 120% or greater of
the Performance Bonus Criteria, Employee
shall earn an Annual Performance Bonus equal
to 100% of Employee's Base Salary, plus an
additional 2% of Employee's Base Salary for
each 1% above 120% of the Performance Bonus
Criteria.
(2) SOURCE OF FINANCIAL INFORMATION AND CALCULATION.
Before Tax Earnings shall be determined on an
accrual basis based on the Employer's audited annual
financial statements for its fiscal tax year. The
determination of Employer's Before Tax earnings by
the Employer's independent auditors will be final
and binding on all parties.
(3) MID-YEAR CALCULATION. If employment is started or
terminated during a fiscal year of the Employer and
Employee is entitled to the Annual Performance Bonus
hereunder, the Annual Performance Bonus
determination will be made at the end of such fiscal
year and prorated based on the number of days
Employee was employed during that year; provided, in
the case of Employee's termination of employment,
Employee in his sole discretion may elect to
determine the Annual Performance Bonus based on
Before Tax
EMPLOYMENT AGREEMENT -3-
<PAGE> 7
Earnings annualized through the last day of the
month preceding the date of Employee's termination
of employment.
(4) PAYMENT. Except as otherwise provided for herein,
the Annual Performance Bonus will be paid no later
than 30 days following the independent auditor's
completion of the Employer's audited annual
financial statements.
C. STOCK OPTIONS. During Employee's employment under this
Agreement, Employee will be eligible to participate in the Snelling and
Snelling, Inc. 1996 Stock Option Plan or such other stock option plans as may
be adopted by the Employer during the term of this Agreement (the "Stock Option
Plan") at a level specified by the Board, or by a committee designated by the
Board, when the Board (or committee) grants options to employees of the
Employer. The terms of each option granted to Employee will be governed by the
Stock Option Plan and the written option agreement entered into between the
Employer and Employee in accordance with the Stock Option Plan.
D. HOME OFFICE. Upon the request of Employee at any time
during the term of this Agreement, the Employer at its expense will equip a
home office for Employee's use and fulfillment of his duties and functions
hereunder. Such home office will be equipped as determined to be appropriate
by the Employer, and shall include on-line electronic access to the files,
records, internal and external communications and other information appropriate
to assist Employee with the fulfillment of his duties hereunder. Employee
agrees that as soon as practicable following termination of this Agreement, he
shall return any and all equipment requested to be returned by the Employer and
that his on-line access to the Employer's information shall cease.
E. OTHER BENEFITS. The Employer shall, at its expense,
furnish Employee with such other benefits as are from time to time provided by
the Employer for the benefit of its executives generally during the term of
this Agreement, including, without limitation, vacation pay, an automobile
allowance and fees for serving on the Board of Directors in amounts not less
than the previous year. In addition, Employer shall at its expense provide the
Employer with long-term disability insurance and umbrella liability insurance
in amounts as determined by the Board and life insurance of two times
Employee's compensation or such other amount as available to the Employer's
employees under its group term life insurance program. All benefits provided
to Employee shall be subject to the provisions of applicable law. During the
term of this Agreement, the benefits provided to Employee for a particular
year, or the economic equivalent thereof, shall not be less than the benefits
provided to Employee for the immediately preceding year.
6. EMPLOYEE COVENANTS. The parties recognize that the services to be
rendered as an employee under this Agreement by Employee are special, unique,
and of an extraordinary character and, therefore, Employee in consideration for
the employment hereunder makes the following representations and covenants (the
"Covenants") for the benefit of Employer.
EMPLOYMENT AGREEMENT -4-
<PAGE> 8
A. EMPLOYEE REPRESENTATIONS.
(1) PROPRIETARY INFORMATION. Employee is aware and
acknowledges that Employer has developed a special
competence in its Business (hereinafter defined) and
has accumulated Confidential Information
(hereinafter defined) not generally known to others
in the field which is of unique value in the conduct
and growth of Employer's Business and which Employer
treats as proprietary.
(2) ACCESS TO CONFIDENTIAL INFORMATION. In the course
of Employee's employment, Employee will be employed
in a position or positions with Employer in which
Employee may receive or contribute to the
Confidential Information of Employer. Employee
recognizes the optimum progress of Employer's
Business cannot take place unless Confidential
Information is entrusted to Employee.
(3) PROTECTION OF GOODWILL. Employee acknowledges that
in the course of carrying out, performing, and
fulfilling his responsibilities to Employer,
Employee has and will have access to and be
entrusted with Confidential Information relating to
Employer's Business and Clients (hereinafter
defined). Employee recognizes that (i) the goodwill
of Employer depends upon, among other things, its
keeping the Confidential Information confidential
and that unauthorized disclosure of the Confidential
Information would irreparably damage Employer, and
(ii) disclosure of any Confidential Information to
competitors of Employer or to the general public
would be highly detrimental to Employer. Employee
further acknowledges that in the course of
performing his obligations to Employer, he will be a
representative of Employer to many of Employer's
Clients and in some instances Employer's primary
contact with the Client, and as such will be
responsible for maintaining or enhancing the
business and goodwill of Employer with those
Clients.
(4) MEANINGS OF TERMS. Employee acknowledges that the
following terms shall have the following meanings:
a. BUSINESS shall mean Employer's present
business of providing personnel services,
including but not limited to, temporary help
services, employee placement, employee
search, employee leasing, and as such
business may be expanded and diversified in
the future through acquisitions by Employer
or future development or diversification,
including any business which Employer has
targeted or
EMPLOYMENT AGREEMENT -5-
<PAGE> 9
discussed to be targeted by officers or board
members for acquisition or entry during the
Restricted Period (as defined below).
b. EMPLOYER shall refer to Snelling and
Snelling, Inc. and its subsidiaries, and any
other business or entity in which Employer
has or acquires an equity interest.
c. CLIENTS means any individual, principal,
proprietorship, partnership, corporation,
association, or other entity that has been
served by Employer as a customer or franchise
during the term of Employee's employment,
including those who were (or became)
Client(s) of Employer at the time of (or at
any time during) Employee's employment.
d. COMPETING BUSINESS means any business, firm,
undertaking, company, or organization, other
than Employer, which competes in any state in
the United States in which the Employer's
business is located (the "Restricted Area")
with Employer's Business.
e. CONFIDENTIAL INFORMATION means information
disclosed to or known to Employee as a direct
or indirect consequence of, or through his
employment with Employer, about Employer's
business methods, operations, and services,
including, but not limited to, all
information, written or oral, including
without limitation, manuals, videos, audios,
and internal publications not generally
known, or proprietary to Employer, about
Employer's manufacturing, marketing, pricing,
accounting, merchandising, and information
gathering techniques and methods, and all
accumulated data, listings, or similar
recorded matter used or useful in Employer's
Business, including but not limited to,
Employer's Client lists, Employer's
franchisees' Client lists, reports, business
forms, advertisements, and marketing reports
and presentation materials. Without regard
to whether any or all of the foregoing
matters would be deemed confidential,
material, or important, the parties hereto
stipulate that as between them, the same are
important, material, and confidential and
gravely affect the effective and successful
conduct of the business of the Employer, and
its goodwill.
EMPLOYMENT AGREEMENT -6-
<PAGE> 10
B. NON-COMPETITION. Employee agrees that during his
employment with Employer, Employee shall not within the Restricted Area, either
through any kind of ownership (other than ownership of securities of any
corporation whose securities are regularly traded on any public exchange or
regulated market of which Employee owns less than one percent (1 %) of any
class of such corporation's outstanding securities), or as a director, officer,
principal, agent, employee, employer, advisor, consultant, co-partner, or in
any individual or representative capacity whatsoever, either for Employee's own
benefit or for the benefit of any other person or firm, partnership,
association, corporation, or other entity, without the prior written consent of
Employer, participate, directly or indirectly, in a Competing Business
involving any Client.
C. NON-INTERFERENCE. During his employment with the Employer
and for a period of thirty-six (36) months after the termination of his
employment, irrespective of the time, manner, or cause of his termination,
Employee shall not:
(1) SOLICITATION. Directly or indirectly, either as
principal, agent, employee, employer, stockholder,
co-partner, or in any other individual or
representative capacity whatsoever induce, solicit,
or attempt to induce or solicit any existing Client
or induce, solicit or attempt to induce or solicit
any existing Client to terminate its relationship
with Employer, either for Employee's own benefit or
for the benefit of any other person, firm, or
corporation competitive with that of the Employer.
(2) SOURCES. Directly or indirectly, request or advise
any present or future merchandise resource, supply
resource, financial resource, or service resource of
the Employer or any existing Client to withdraw,
curtail, or cancel the furnishing or sales of
merchandise, supplies, or services to the Employer
or any existing Client.
(3) EMPLOYEES. Directly or indirectly, induce or
attempt to influence any employee of the Employer
or employee of any existing Client to terminate
employment with the Employer or the existing Client,
as the case may be, or hire any former employee of
the Employer who has resigned.
D. DISCLOSURE OF INFORMATION. Unless compelled to disclose
information in a legal proceeding, Employee expressly covenants and agrees that
he will not, during or after the termination of his employment with the
Employer, irrespective of the time, manner or cause of the termination,
directly or indirectly use, disclose, copy, or assist any other person or firm
in the use, disclosure, or copying of, any Confidential Information, except
with the written consent of or at the written request of Employer.
EMPLOYMENT AGREEMENT -7-
<PAGE> 11
E. RETURN OF RECORDS. Upon termination of his employment,
Employee will surrender to the Employer all lists, books, and records of or in
connection with the Employer's Clients, customers, suppliers, prospective
customers, or businesses and all copies thereof and all other property
belonging to the Employer, whatsoever, including, without limitation, all
Confidential Information. Employee shall have no right to copy or otherwise
reproduce lists, books or accounts, records or other property of the Employer.
F. REMEDIES.
(1) ENFORCEMENT OF COVENANTS. Employee agrees that a
violation on his part of any Covenant in this
Paragraph 6 will cause such damage to the Employer
as will be irreparable and for that reason, Employee
further agrees that the Employer shall be entitled,
as a matter of right, to an injunction out of any
court of competent jurisdiction, restraining any
further violation of the Covenants by Employee, his
employer, employees, partners, or agents. In
addition to the foregoing remedy, in the event of a
violation by Employee of any Covenant in this
Paragraph 6, Employee shall be liable to the
Employer for actual damages. Such right to
injunction and actual damages shall be cumulative
and in addition to whatever other remedies the
Employer may have.
(2) INDEPENDENT COVENANTS. Each of the Covenants
contained in this Paragraph 6 shall be construed as
covenants or agreements independent of any other
provision of this Paragraph 6 of this Agreement and
the allegation or existence of any claim or cause of
action of Employee against the Employer, whether
predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by the
Employer of the Covenants contained herein.
(3) INTERPRETATION. It is the intent of the parties
that the provisions contained in Paragraph 6 shall,
to the fullest extent permissible under law and
public policy, be enforced by the courts of each
state and jurisdiction in which enforcement is
sought and that the unenforceability (or the
modification necessary to conform with such law and
public policy) of any part of Paragraph 6 shall not
be deemed to render unenforceable any other part of
Paragraph 6. Accordingly, if any part of Paragraph
6 shall be adjudicated to be invalid or
unenforceable in any action or proceeding in which
Employee, his heirs, executors, administrators and
the Employer, its successors, or assigns, are
parties, whether in its entirety or except as
modified as to duration, territory, accounts,
employees, or otherwise, then that part shall be
deemed deleted or amended, as the case may be, from
the Agreement in order to render the
EMPLOYMENT AGREEMENT -8-
<PAGE> 12
remainder of Paragraph 6 both valid and enforceable.
Any such deletion or amendment shall apply only
where the court rendering the same has jurisdiction.
(4) SURVIVAL. Notwithstanding any provision in this
Agreement to the contrary, the representations of
Employee contained in Paragraph 6A and the rights of
the Employer hereunder relating to such
representations shall not terminate upon the
termination of this Agreement but shall continue to
remain in full force and effect for a period of
thirty-six (36) months after the termination of
Employee's employment with the Employer,
irrespective of the time, manner or cause of his
termination.
(5) NOTICE REQUIRED. Employee expressly agrees to
notify any prospective employer or affiliate in a
Competing Business of the Covenants, and authorizes
Employer to make contact with, and discuss the
nature and obligations of these Covenants with, any
person or affiliate reasonably believed by Employer
to be engaged or about to be engaged in an act that
would constitute a violation of the Covenants.
Employee hereby waives and releases Employer from,
any claims whatsoever arising in connection with
Employer's contact or discussions with such person
or affiliate.
7. TERM. Subject to the provisions for termination as provided
elsewhere herein the term of Employee's employment under this Agreement shall
commence on December 1, 1996, and terminate on December 31, 2006.
8. TERMINATION. Notwithstanding anything herein contained to the
contrary (including Paragraph 7 hereof), this Agreement shall terminate upon
the first to occur of any of the following events:
A. DEATH. Upon the death of Employee.
B. DISABILITY. Upon the final and binding determination of
disability of Employee, whether by mutual agreement or in accordance with the
procedures set forth in this Subparagraph 8B. For purposes of this Agreement,
Employee shall be subject to a "disability" when he is unable to continue
substantially all of his normal duties of employment by reason of a physical or
mental impairment. In determining whether Employee is subject to a disability,
Employer's determination shall be based upon the opinion of any licensed
physician of the appropriate recognized field of medicine or psychiatric
practice who has examined Employee and who agrees and opines that the Employee
is disabled; provided, however, if Employee disagrees with such determination,
then Employee and Employer shall agree upon an independent qualified physician
to review the case and make a final determination of disability. If the
parties cannot agree upon an independent physician to make such determination,
then each party shall appoint
EMPLOYMENT AGREEMENT -9-
<PAGE> 13
a physician and those two physicians shall select a third physician who shall
then make a final and binding determination with respect to Employee's
disability.
C. MUTUAL CONSENT. By mutual written consent of the parties.
D. BY EMPLOYEE. By Employee by giving 30 days' written notice
of termination to Employer.
E. FOR "GOOD CAUSE". By Employer upon written notice for
"good cause," which shall mean for purposes of this Agreement, Employee's (i)
conviction of a felony or any other criminal act which the Board considers
materially damaging to the reputation of the Employer, (ii) conviction of
fraud, (iii) conviction of dishonesty, self-dealing, or embezzlement, (iv)
willful and intentional violation of Employer's published policies, (v) gross
or intentional neglect of duty, or (vi) failure or unwillingness to perform
substantially and faithfully Employee's duties hereunder (other than a failure
due to Employee's disability); provided, however, in the event "good cause"
relates to items (iv) through (vi) above, then Employer shall notify Employee
of such cause, and, if such violation can be cured, Employee shall have 30 days
from receipt of notice to cure such violation.
F. DECEMBER 31, 2006.
The effective date of termination under the foregoing provisions shall be as
follows:
(1) PARAGRAPH 8A, the date of death.
(2) PARAGRAPH 8B, the date of written notice from the
Employer to Employee of his "disability"
termination.
(3) PARAGRAPH 8C, the date determined under the written
mutual consent of the parties.
(4) PARAGRAPH 8D, the termination date as provided in
Employee's written notice; provided that the
Employer may accelerate the termination so that it
occurs at any time during the 30-day notice period,
while continuing Employee's Base Salary for the
remainder of the 30-day notice period.
(5) PARAGRAPH 8E, the termination shall be immediate
upon the delivery by Employer of written notice or
the end of the cure period if cure is possible but
is not effected.
(6) PARAGRAPH 8F, December 31, 2006.
EMPLOYMENT AGREEMENT -10-
<PAGE> 14
Notwithstanding the foregoing, Employer may terminate Employee's use of
Employer's offices, equipment and supplies at any time after notice of
termination of employment is given by Employer or Employee.
9. PAYMENTS UPON TERMINATION; SEVERANCE.
A. DEATH. In the event termination of employment is the
result of death under Paragraph 8A above, Employee shall be paid his Base
Salary through the end of the month in which death occurred; Employee's Annual
Performance Bonus will be determined through the last day of the month
preceding the month in which death occurs in accordance with the provisions of
Paragraph 5B(3); and the right of Employee's representative to exercise stock
options, if any, will be determined in accordance with the terms of the Stock
Option Plan.
B. DISABILITY. In the event of termination of employment for
disability under Paragraph 8B above, Employee shall be paid his Base Salary
through the date of termination of employment; Employee's Annual Performance
Bonus will be determined through the last day of the month preceding the month
in which the termination of employment occurs in accordance with the provisions
of Paragraph 5B(3); and the right of Employee or Employee's representative to
exercise stock options, if any, will be determined in accordance with the terms
of the Stock Option Plan.
C. MUTUAL CONSENT. If termination of employment is by mutual
consent under Paragraph 8C above, the parties shall agree to the payments to be
made, if any, to Employee upon such termination.
D. BY EMPLOYEE. In the event of termination of employment by
Employee under Paragraph 8D, Employee shall be paid his Base Salary through the
date of termination of employment. Employee's Annual Performance Bonus will be
determined through the last day of the month preceding the date of termination
of his employment in accordance with the provisions of Paragraph 5B(3).
Employee's right to exercise stock options, if any, will be determined in
accordance with the terms of the Stock Option Plan.
E. FOR GOOD CAUSE. In the event of a termination of
employment for good cause under Paragraph 8E, Employee will be entitled to
receive his Base Salary through the date of termination of employment.
Employee will not be entitled to receive any Annual Performance Bonus or to
exercise any unexercised stock options under the Stock Option Plan.
F. EXPIRATION OF AGREEMENT. In the event of termination of
employment in connection with the termination of the Agreement under Paragraph
8F, Employee shall be paid his Base Salary and Annual Performance Bonus through
December 31, 2006, and will be entitled to exercise stock options, if any,
under the terms of the Stock Option Plan.
G. ADDITIONAL BENEFITS. In the event Employer terminates
Employee's employment prior to the date set forth in Paragraph 8F, other than
for good cause under
EMPLOYMENT AGREEMENT -11-
<PAGE> 15
Paragraph 8E, Employee will be entitled to receive, in addition to other
amounts, if any, payable to Employee under this Agreement, a severance benefit
in an amount equal to three times his Base Salary and Annual Performance Bonus
paid by Employer during the twelve month period immediately preceding his
termination of employment, reduced by the Base Salary and Annual Performance
Bonus payments, if any, payable to Employee under other provisions of this
Agreement as a result of Employee's termination of employment.
H. CHANGE IN CONTROL.
(1) Notwithstanding anything else stated in this
Paragraph 9, if (A) a Change in Control, as defined
in subparagraph H(2), occurs during the term of this
Agreement, and (B) if on or at any time during the
two-year period immediately following a Change in
Control, the Employee's employment with the Employer
is terminated, either:
(i) by the Company for any reason other than the
occurrence of one of the events set forth in
Subparagraphs 8A, 8B, 8C, 8E or 8F; or
(ii) by the Employee as the result of and on or
before the expiration of 60 days following:
(a) a significant reduction by the Employer
of Employee's job responsibilities with the
Employer, or (b) a reduction by the Employer
of Employee's Base Salary as in effect
immediately prior to the Change in Control,
or (c) because of a move of Employee's job
location by more than 25 miles;
then the Employer shall pay to the Employee, within 30 days after the effective
date of Employee's termination of employment, an amount equal to three times
Employee's Base Salary and three times a pro rata portion of Employee's Annual
Performance Bonus determined through the date of termination of employment, and
the Employer shall take such actions as are lawfully permitted to have all
options to purchase shares under the Stock Option Plan that are not then
exercisable, become immediately exercisable. The Employer may withhold from
such payment any federal, state, city, county or other taxes. If amounts paid
pursuant to this paragraph 9H become subject to the excise tax (the "Excise
Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as
amended, the Employer shall pay to Employee an additional amount such that the
net amount retained by Employee, after deduction of any Excise Tax on the
amounts payable under this Paragraph 9H, shall be equal to the full amount
payable under this Paragraph 9H with regard to the Excise Tax.
(2) "Change in Control" for purposes of this Paragraph
means the first to occur of any of the following
events:
EMPLOYMENT AGREEMENT -12-
<PAGE> 16
(A) the effective date of any transaction or
series of transactions (other than a
transaction to which only the Employer and
one or more of its subsidiaries are parties)
pursuant to which (i) the Employer becomes a
subsidiary of another corporation, or (ii)
Employer is merged or consolidated with, or
assets or more than 51% of the outstanding
voting securities of the Employer are sold to
or acquired by, another person, another
corporation or another group of associated
persons acting in concert; provided, however,
that for purposes of this subparagraph
H(2)(A), in the case of a "series of
transactions" as described herein, the
effective date of the final transaction shall
be deemed to be the date of the final
transaction upon which one of the results set
forth above occurs; or
(B) the date upon which any person, corporation
or group of associated persons acting in
concert, excluding any persons or groups who
have then been directors, officers or holders
of greater than five percent of the
outstanding voting securities of the Employer
for a continuous period of at least five
years, become a direct or indirect beneficial
owner of voting securities of the Employer
representing an aggregate of more than 20% of
the votes then entitled to be cast at an
election of the Employer's Board of
Directors; or
(C) the date upon which the persons who were
members of the Board of Directors, as of the
effective date of this Agreement (the
"Original Directors"), cease to constitute a
majority of the Board of Directors; provided,
however, that any new director whose
nomination or selection has been approved by
the affirmative vote of at least a majority
of the Original Directors then in office
shall also be deemed an Original Director.
Except for the foregoing payments, Employee shall not be entitled to receive
any other benefits except as may be required by law.
10. REFERENCES AND GENDER. All references to "paragraphs" or
"subparagraphs" contained herein are, unless specifically indicated otherwise,
references to paragraphs or subparagraphs of this Agreement. Whenever herein
the singular number is used, the same shall include the plural where
appropriate, and words of any gender shall include each other gender where
appropriate. The terms "herein" and "hereof" as used in this Agreement are
references to this Agreement, unless the context indicates otherwise.
EMPLOYMENT AGREEMENT -13-
<PAGE> 17
11. CAPTIONS. The captions, headings, and arrangements used in this
Agreement are for convenience only and do not in any way affect, limit,
amplify, or modify the terms and provisions hereof.
12. NOTICES. Whenever this Agreement requires or permits any consent,
approval, notice, request, or demand from one party to another, the consent,
approval, notice, request, or demand must be in writing to be effective,
including, without limitation, telex, or telegraphic communications, and shall
be deemed to have been given on the earlier of receipt or the third day after
it is enclosed in an envelope, addressed to the Employee at the address set
forth for the Employee on the payroll records of the Employer and to the
Employer at the address stated below or at such other address as the Employer
may designate for all purposes as its corporate headquarters, properly stamped,
sealed, and deposited in the United States mail. The address of Employer as of
the effective date of this Agreement is as set forth on the signature page
hereof.
13. INSURANCE; MEDICAL EXAM. Employee agrees to take a physical
examination to be performed by a medical doctor selected by the Employer. The
cost of such exam will be borne by the Employer. During the term of this
Agreement Employee shall be required as a condition of employment to take an
annual physical exam at the expense of the Employer. In addition, Employee
agrees to take such physical examinations as may be required by the Employer in
order for the Employer to purchase insurance on Employee's life in such amount
or amounts as the Employer deems appropriate.
14. INVALID PROVISIONS. If any provision of this Agreement is held to
be illegal, invalid, or unenforceable under present or future laws effective
during the term, including renewals, of this Agreement, such provision shall be
fully severable; this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part of this
Agreement; and the remaining provisions of this Agreement shall remain in full
force and effect and shall not be affected by the illegal, invalid, or
unenforceable provision or by its severance from this Agreement. Furthermore,
in lieu of each such illegal, invalid, or unenforceable provision there shall
be added automatically as part of this Agreement a provision as similar in
terms to such illegal, invalid, or unenforceable provision as may be possible
and be legal, valid, and enforceable.
15. NONASSIGNABILITY. Neither this Agreement, nor any rights or
obligations of either party hereunder may be transferred or assigned except
that the Employer may assign this entire Agreement to any successor to all or
substantially all of the Employer's business and assets.
16. ENTIRE AGREEMENT. This Agreement contains the entire agreement of
the parties hereto. No modification or amendment of any of the terms,
conditions, or provisions herein may be made otherwise than by written
agreement signed by the parties hereto, or in any event by the parties sought
to be bound hereby.
17. LAWS GOVERNING. THIS AGREEMENT SHALL BE CONSTRUED AND INTERPRETED
ACCORDING TO THE LAWS OF THE STATE OF TEXAS.
EMPLOYMENT AGREEMENT -14-
<PAGE> 18
18. SUCCESSION. This Agreement shall inure to the benefit of and be
binding upon the parties hereto, and upon their successors in interest of any
kind whatsoever.
19. ARBITRATION. Any controversy or claim arising out of or relating
to this Agreement, including but not limited to claims based on or arising from
an alleged tort, shall at the request of any party be determined by
arbitration, under the auspices and rules of the American Arbitration
Association, in accordance with the Texas General Arbitration Act if
applicable, otherwise in accordance with the United States Arbitration Act.
Judgment upon the award rendered by the arbitrator shall be entered in any
court having jurisdiction. The institution and maintenance of an action for
judicial relief or pursuit of a provisional or ancillary remedy shall not
constitute a waiver of the right of any party to submit the controversy or
claim to arbitration. Nothing contained in this paragraph is intended to
prevent a party from bringing an action in State or Federal court in Dallas
County, Texas, or such other county and state in which Employer then has its
principal place of business, to (i) enforce that party's right to arbitrate
under this Agreement or (ii) to obtain relief by way of Specific Performance to
enforce the Covenants contained in Paragraph 6 hereof. The arbitration shall
be commenced by filing a demand for arbitration upon the other party or parties
and the American Arbitration Association. The arbitrator shall be a person who
is qualified to make decisions in legal matters. The arbitration proceeding
shall be held in Dallas County, Texas. The arbitrator shall maintain the
privacy of the hearings, and shall have the power to exclude witnesses, other
than a party, during the testimony of any other witness. The prevailing party
in the arbitration proceeding shall be entitled to reasonable attorney's fees,
costs, and necessary expenses incurred in connection with such proceeding, as
determined by the arbitrator.
20. WAIVERS AND CONSENTS. One or more waivers of any covenant, term,
or provision of this Agreement by any party shall not be construed as a waiver
of a subsequent breach of the same covenant, term, or provision, nor shall it
be considered a waiver of any other then existing or subsequent breach of a
different covenant, term, or provision. The consent or approval by either
party to or of any act by the other party requiring such consent or approval
shall not be deemed to waive or render unnecessary consent to or approval of
any subsequent similar act. No custom or practice of either party shall
constitute a waiver of either party's rights to insist upon strict compliance
with the terms hereof.
21. MULTIPLE COUNTERPARTS. This Agreement has been executed in a
number of identical counterparts, each of which, for all purposes, is to be
deemed an original, and all of which constitute, collectively, an agreement;
but in making proof of this Agreement, it shall not be necessary to produce or
account for more than one such counterpart.
(The signature page is the next following page)
EMPLOYMENT AGREEMENT -15-
<PAGE> 19
IN WITNESS WHEREOF, this Agreement is executed as of the date first
written above.
EMPLOYEE: EMPLOYER:
SNELLING AND SNELLING, INC.
/s/ J. RUSSELL CREWS By: /s/ ROBERT O. SNELLING, SR.
- ----------------------- --------------------------
J. Russell Crews Robert O. Snelling, Sr.
Chairman of the Board
ADDRESS: ADDRESS:
5116 Beckington Lane 12801 N. Central Expressway
Dallas, Texas 75287 Suite 700
Dallas, Texas 75243
EMPLOYMENT AGREEMENT -16-
<PAGE> 1
EXHIBIT 10.13
================================================================================
CREDIT AGREEMENT
among
SNELLING AND SNELLING, INC.
as Borrower,
THE FIRST NATIONAL BANK OF BOSTON,
as Agent,
and
the lenders named herein
31 January 1996
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 - Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 1.3 Accounting Terms and Determinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 1.4 Time of Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 2 - Revolving Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.1 Revolving Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.2 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.3 Repayment of Revolving Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.4 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.5 Revolving Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.6 Termination or Reduction of Revolving Commitments . . . . . . . . . . . . . . . . . . . . . 19
Section 2.7 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(a) Commitment to Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(b) Letter of Credit Request Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(c) Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(d) Funding of Drawings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(e) Reimbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(f) Reimbursement Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(g) Issuer Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 3 - Acquisition Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 3.1 Acquisition Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 3.2 Acquisition Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 3.3 Repayment of Acquisition Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 3.4 Use of Proceeds of Acquisition Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 3.5 Acquisition Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 3.6 Termination or Reduction of Acquisition Commitments . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 4 - Interest and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.1 Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.2 Determinations of Margins and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.3 Payment Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 4.4 Default Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 4.5 Conversions and Continuations of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 4.6 Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE 5 - Administrative Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.1 Borrowing Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.2 Minimum Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.3 Certain Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.4 Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 5.5 Method of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 5.6 Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 5.7 Sharing of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 5.8 Non-Receipt of Funds by the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 5.9 Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 5.10 Withholding Tax Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 5.11 Participation Obligations Absolute; Failure to Fund
Participation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE 6 - Yield Protection and Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 6.1 Additional Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 6.2 Limitation on Libor Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 6.3 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 6.4 Treatment of Affected Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 6.5 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 6.6 Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE 7 - Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 7.1 Initial Loan and Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 7.2 Loans for Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 7.3 All Loans and Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE 8 - Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 8.1 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 8.2 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 8.3 Corporate Action; No Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 8.4 Operation of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 8.5 Litigation and Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 8.6 Rights in Properties; Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 8.7 Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 8.8 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 8.9 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 8.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 8.11 Margin Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 8.12 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 8.13 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 8.14 Subsidiaries; Borrower Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 8.15 Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 8.16 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 8.17 Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 8.18 Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 8.19 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 8.20 Deposit and Brokerage Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE 9 - Positive Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 9.1 Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 9.2 Maintenance of Existence; Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . 51
Section 9.3 Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
</TABLE>
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<TABLE>
<S> <C>
Section 9.4 Taxes and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 9.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 9.6 Inspection Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 9.7 Keeping Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 9.8 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 9.9 Compliance with Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 9.10 Further Assurances and Collateral Matters . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 9.11 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 9.12 Interest Rate Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
ARTICLE 10 - Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 10.1 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 10.2 Limitation on Liens and Restrictions on Subsidiaries . . . . . . . . . . . . . . . . . . . 55
Section 10.3 Mergers, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 10.4 Restricted Junior Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 10.5 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 10.6 Limitation on Issuance of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 10.7 Transactions With Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 10.8 Disposition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 10.9 Sale and Leaseback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 10.10 Lines of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
ARTICLE 11 - Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 11.1 Consolidated Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 11.2 Senior Debt to Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 11.3 Total Funded Debt to Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 11.4 Interest Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 11.5 Fixed Charge Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 11.6 Working Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 11.7 Capital Expenditure Limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
ARTICLE 12 - Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 12.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 12.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 12.3 Cash Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 12.4 Performance by the Agent; Advances to Cover Debit Balances in Deposit Accounts . . . . . . 67
Section 12.5 Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
ARTICLE 13 - The Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 13.1 Appointment, Powers and Immunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 13.2 Rights of Agent as a Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 13.3 Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 13.4 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 13.5 Independent Credit Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 13.6 Several Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 13.7 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 13.8 Agent Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
</TABLE>
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<TABLE>
<S> <C>
ARTICLE 14 - Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 14.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 14.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 14.3 Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 14.4 No Duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 14.5 No Fiduciary Relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 14.6 Equitable Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 14.7 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 14.8 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 14.9 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 14.10 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 14.11 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 14.12 Maximum Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 14.13 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 14.14 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 14.15 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 14.16 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 14.17 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 14.18 Non-Application of Chapter 15 of Texas Credit Code . . . . . . . . . . . . . . . . . . . . 77
Section 14.19 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 14.20 Independence of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 14.21 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
</TABLE>
iv
<PAGE> 6
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description of Exhibit
------- ----------------------
<S> <C>
"A" Revolving Note
"B" Acquisition Note
"C" Borrowing Base Report
"D" Guaranty
"E" Borrower Security Agreement
"F" Borrower Pledge Agreement
"G" Subsidiary Security Agreement
"H" Assignment and Acceptance
"I" Compliance Certificate
"J" Shareholder Pledge Agreement
"K" Voting Control Certificate
"L" Secondary Revolving Acquisition
Sublimit Certificate
"M" Sample Subordination Agreement
</TABLE>
INDEX TO SCHEDULES
<TABLE>
<CAPTION>
Schedule Description of Schedule
-------- -----------------------
<S> <C>
1.1(a) Lockbox Agreements and Accounts
8.5 Existing Litigation
8.14 List of Subsidiaries
10.1 Debt
10.2 Existing Liens
10.5 Existing Investments
</TABLE>
v
<PAGE> 7
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (the "Agreement"), dated as of January 31, 1996,
is among SNELLING AND SNELLING, INC., a corporation duly organized and validly
existing under the laws of the State of Pennsylvania ("Borrower"), each of the
banks or other lending institutions which is or which may from time to time
become a signatory hereto or any successor or assignee thereof pursuant to
Section 14.8 hereof (individually, a "Bank" and, collectively, the "Banks"),
and THE FIRST NATIONAL BANK OF BOSTON, individually as a Bank and as agent for
itself and the other Banks (in its capacity as agent, together with its
successors in such capacity, the "Agent").
R E C I T A L S:
The Borrower has requested that the Banks extend credit to the
Borrower in the form of a revolving credit facility and an acquisition loan
facility. The Banks are willing to extend such credit to the Borrower upon the
terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1 DEFINITIONS. As used in this Agreement, the
following terms have the following meanings:
"ACCOUNT" means either a Base Rate Account or a Libor Account.
"ACQUISITION AVAILABILITY TERMINATION DATE" means January 31, 1998.
"ACQUISITION COMMITMENT" means, as to any Bank and as of any date of
determination, the obligation of such Bank to make advances of funds from time
to time in an aggregate principal amount at any time outstanding up to but not
exceeding the sum of (a) the amount set forth opposite the name of such Bank on
the signature pages hereto under the heading "Acquisition Commitment" as the
same may be reduced or terminated pursuant to SECTION 3.6 or SECTION 12.2
hereof MINUS (b) all Acquisition Loans made by such Bank to the date of
determination. The aggregate amount of the Acquisition Commitments of all
Banks equals Twenty-Five Million Dollars ($25,000,000) on the Closing Date.
"ACQUISITION LOANS" means, as to any Bank, the advances made by such
Bank pursuant to SECTION 3.1 hereof, and as to all Banks, all the advances made
by the Banks pursuant to SECTION 3.1 hereof. The term "ACQUISITION LOAN" shall
mean, as to any Bank, the advance made by such Bank pursuant to Section 3.1
hereof on a day to finance a Permitted Acquisition identified pursuant to
SECTION 7.2 and as to all Banks, the advances made by the Banks pursuant to
SECTION 3.1 hereof on such day to finance such Permitted Acquisition.
CREDIT AGREEMENT - Page 1
<PAGE> 8
"ACQUISITION NOTES" means the promissory notes provided for by Section
3.2 hereof and all amendments or other modifications thereof.
"ADDITIONAL COSTS" has the meaning specified in Section 6.1 hereof.
"ADJUSTED EBITDA" means, for any period (the "SUBJECT PERIOD"), the
total of the following calculated without duplication for such period: (a) the
Borrower's EBITDA; PLUS (b), on a pro forma basis, the EBITDA of each Prior
Target or, as applicable, the EBITDA of a Prior Target attributable to the
assets acquired from such Prior Target, for any portion of such Subject Period
occurring prior to the date of the Borrower's acquisition of such Prior Target
or the related assets but only to the extent such EBITDA for such Prior Target
can be established based on financial statements of the Prior Target prepared
in accordance with GAAP.
"ADJUSTED LIBOR RATE" means, for any Libor Account for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/16 of 1%) determined by the Agent to be equal to the Libor Rate for
such Libor Account for such Interest Period divided by 1 minus the Reserve
Requirement for such Libor Account for such Interest Period.
"ADJUSTMENT DATE" has the meaning specified in Section 4.2 hereof.
"AFFILIATE" means, as to any Person, any other Person (a) that
directly or indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with, such Person; (b) that directly
or indirectly beneficially owns or holds five percent (5%) or more of any class
of voting stock of such Person; or (c) five percent (5%) or more of the voting
stock of which is directly or indirectly beneficially owned or held by the
Person in question. The term "control" means the possession, directly or
indirectly, of the power to direct or cause direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract, or otherwise; provided, however, in no event shall the Agent or any
Bank be deemed an Affiliate of the Borrower or any Subsidiaries.
"AGENCY ACCOUNT RESERVE" means Two Million Five Hundred Thousand
Dollars ($2,500,000.00); PROVIDED THAT, if Agent is no longer obligated under
the Agency Account Agreements which are dated the date hereof and entered into
with Texas Commerce Bank National Association ("TCB") (one with Borrower and
the other with APS) to transfer funds to TCB under the terms of Section 1.05 of
each such agreement, then the Agency Account Reserve shall equal zero (0).
"AGENT" has the meaning set forth in the introductory paragraph of
this Agreement.
"AGREEMENT" has the meaning set forth in the introductory paragraph of
this Agreement.
"AMORTIZATION AMOUNT" has the meaning specified in Section 3.3 hereof.
"APPLICABLE LENDING OFFICE" means for each Bank and each Type of
Account, the lending office of such Bank (or of an Affiliate of such Bank)
designated for such Account below its name on the signature pages hereof or
such other office of such Bank (or of an Affiliate of such
CREDIT AGREEMENT - Page 2
<PAGE> 9
Bank) as such Bank may from time to time specify to the Borrower and the Agent
as the office by which its Loans subject to Accounts of such Type are to be
made and maintained.
"APPLICABLE RATE" has the meaning set forth in SECTION 4.1 hereof.
"APS" means Advance Processing Systems, Inc., a Florida corporation.
"ARIMATHEA" means Arimathea Associates, Ltd., a Texas limited
partnership.
"ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance entered
into by a Bank and its assignee and accepted by the Agent pursuant to SECTION
14.8 hereof, in substantially the form of EXHIBIT "H" hereto.
"BANK" has the meaning set forth in the introductory paragraph of this
Agreement.
"BASE MARGIN" has the meaning specified in SECTION 4.2 hereof.
"BASE RATE" means, at any time, the rate of interest per annum then
most recently established by the Agent as its base rate, which rate may not be
the lowest rate of interest charged by the Agent to its borrowers. Each change
in any interest rate provided for herein based upon the Base Rate resulting
from a change in the Base Rate shall take effect without notice to the Borrower
at the time of such change in the Base Rate.
"BASE RATE ACCOUNT" means a portion of a Loan that bears interest at a
rate based upon the Base Rate.
"BORROWER" has the meaning set forth in the introductory paragraph of
this Agreement.
"BORROWER PLEDGE AGREEMENT" means the pledge agreement between the
Borrower and the Agent for the benefit of itself and the Banks, in
substantially the form of EXHIBIT "F" hereto, as the same may be amended or
otherwise modified.
"BORROWER SECURITY AGREEMENT" means the security agreement between the
Borrower and Agent for the benefit of itself and the Banks, in substantially
the form of EXHIBIT "E" hereto, as the same may be amended or otherwise
modified.
"BORROWING BASE" means, at any time and calculated without duplication
based on the report most recently delivered at such time pursuant to SECTION
9.1(d), an amount equal to the product of (a) the aggregate amount of Eligible
Accounts multiplied by (b) eighty percent (80%) or, if the Agent shall have
provided its prior written consent after a request from Borrower (which consent
may be provided or withheld by the Agent in its sole discretion), eighty- five
percent (85%).
"BUSINESS DAY" means (a) any day excluding Saturday, Sunday and any
day which either is a legal holiday under the laws of the States of
Massachusetts, Georgia or Texas or is a day on which banking institutions
located in any such States are closed, and (b), with respect to all borrowings,
payments, Conversions, Continuations, Interest Periods, and notices in
connection
CREDIT AGREEMENT - Page 3
<PAGE> 10
with Loans subject to Libor Accounts, any day which is a Business Day described
in clause (a) above and which is also a day on which dealings in Dollar
deposits are carried out in the London interbank market.
"CALCULATION PERIOD" has the meaning specified in Section 4.2 hereof.
"CAPITAL EXPENDITURES" means, for any period, all expenditures of the
Borrower and its Subsidiaries which are classified as capital expenditures in
accordance with GAAP including all such expenditures associated with Capital
Lease Obligations but excluding, to the extent included, any such expenditures
made in connection with an acquisition funded with the proceeds of Acquisition
Loans.
"CAPITAL LEASE OBLIGATIONS" means, as to any Person, the obligations
of such Person to pay rent or other amounts under a lease of (or other
agreement conveying the right to use) real and/or personal property, which
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP. For purposes of this Agreement,
the amount of such Capital Lease Obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.
"CLOSING DATE" means February 1, 1996.
"CODE" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated and rulings issued thereunder.
"COLLATERAL" means the property in which Liens have been granted
pursuant to the Borrower Security Agreement, the Borrower Pledge Agreement, the
Subsidiary Security Agreements, and the Shareholder Pledge Agreements, whether
such Liens are now existing or hereafter arise.
"COMMITMENT FEE RATE" means the per annum rate determined in
accordance with SECTION 4.2 hereof.
"COMMITMENT PERCENTAGE" means, as to any Bank, the percentage
equivalent of a fraction the numerator of which is the amount of the
Commitments of such Bank and the denominator of which is the aggregate amount
of the Commitments of all of the Banks.
"COMMITMENTS" means, as to each Bank, such Bank's Revolving Commitment
and Acquisition Commitment.
"COMPLIANCE CERTIFICATE" means a certificate in substantially the form
of Exhibit "I" hereto, properly completed and executed by the president or
treasurer of the Borrower.
"CONCENTRATION ACCOUNT" shall mean a deposit account established at
the Agent by the Borrower and controlled by the Agent for the benefit of the
Banks in which all funds received through the Lockbox Accounts shall be
deposited except for accounts representing payment of promotional fund
contributions by Franchisees as specified in the Borrower Security Agreement or
the Subsidiary Security Agreements.
CREDIT AGREEMENT - Page 4
<PAGE> 11
"CONTINUE", "CONTINUATION", and "CONTINUED" shall refer to the
continuation pursuant to SECTION 4.5 or ARTICLE 6 hereof of a Libor Account as
a Libor Account from one Interest Period to the next Interest Period.
"CONVERT", "CONVERSION", and "CONVERTED" shall refer to a conversion
pursuant to SECTION 4.5 or ARTICLE 6 hereof of one Type of Account into the
other Type of Account.
"DEBT" means as to any Person at any time (without duplication): (a)
all obligations of such Person for borrowed money, including, without
limitation, any notes payable to the seller in connection with any acquisition,
the Revolving Loans and the Acquisition Loans; (b) all obligations of such
Person evidenced by bonds, notes, debentures, or other similar instruments; (c)
all obligations of such Person to pay the deferred purchase price of property
or services, except trade accounts payable of such Person arising in the
ordinary course of business that are not past due by more than ninety (90) days
or that are being contested in good faith by appropriate proceedings diligently
pursued and for which adequate reserves have been established; (d) all Capital
Lease Obligations of such Person; (e) all Debt or other obligations of others
Guaranteed by such Person; (f) all obligations secured by a Lien existing on
property owned by such Person, whether or not the obligations secured thereby
have been assumed by such Person or are non-recourse to the credit of such
Person; (g) all reimbursement obligations of such Person (whether contingent or
otherwise) in respect of letters of credit, bankers' acceptances, surety or
other bonds and similar instruments (including those outstanding with respect
to Letters of Credit); and (h) all liabilities of such Person in respect of
unfunded vested benefits under any Plan. The term "Debt" shall not include any
amounts owed as deferred compensation to officers and employees of a Person.
"DEFAULT" means an Event of Default or the occurrence of an event or
condition which with notice or lapse of time or both would become an Event of
Default.
"DEFAULT RATE" means, in respect of any principal of any Loan, any
Reimbursement Obligation, or any other amount payable by the Borrower under any
Loan Document which is not paid when due (whether at stated maturity, by
acceleration, or otherwise), a rate per annum during the period commencing on
the due date until such amount is paid in full equal to the sum of two percent
(2%) plus the Applicable Rate for Base Rate Accounts under the Revolving Loans
as in effect from time to time (provided, that if such amount in default is
principal of a Loan subject to a Libor Account and the due date is a day other
than the last day of an Interest Period therefor, the "Default Rate" for such
principal shall be, for the period from and including the due date and to but
excluding the last day of the Interest Period therefor, two percent (2%) plus
the interest rate for such Loan for such Interest Period as provided in SECTION
4.1 hereof, and, thereafter, the rate provided for above in this definition).
"DISBURSEMENT ACCOUNT" means the controlled disbursement account of
Borrower maintained on the date hereof with Texas Commerce Bank National
Association and any account opened by Borrower in replacement thereof with
Agent or any financial institution who has executed an agreement in form and
substance satisfactory to the Agent pursuant to which such institution
recognizes the Agent's Lien in such account and agrees to transfer the
collected balances therein to the Agent upon its request after an Event of
Default.
CREDIT AGREEMENT - Page 5
<PAGE> 12
"DOLLARS" and "$" mean lawful money of the United States of America.
"EBITDA" means, for any period and any Person, the total of the
following each calculated without duplication for such Person on a consolidated
basis for such period: (a) Net Income; plus (b) any provision for (or less any
benefit from) income or franchise taxes included in determining Net Income;
plus (c) Net Interest Expense deducted in determining Net Income; plus (d)
amortization and depreciation expense deducted in determining Net Income; plus
(e) other noncash charges deducted in determining consolidated net income and
not already deducted in accordance with clauses (b) and (c) of the definition
of Net Income.
"ELIGIBLE ACCOUNT" means an account of the Borrower or Granting
Subsidiary created from the performance of services or the sale of goods by
Borrower or the applicable Granting Subsidiary in the ordinary course of
business, including, without limitation or in addition the following: (a) any
override commission, franchising fees or licensing fees payable to the Borrower
or a Granting Subsidiary in the ordinary course of business by a Franchisee or
(b) amounts owed to Borrower or any Granting Subsidiary in the ordinary course
of business for (i) labor performed by temporary workers provided by
Franchisees who have entered into a Paybill Arrangement, (ii) temp to hire
placement fees, and (iii) career placement fees (any one of the foregoing
herein a "Receivable") that satisfies the following conditions:
(i) The Receivable complies with all applicable laws,
rules, and regulations, including, without limitation, usury laws;
(ii) The Receivable has not been outstanding for more than
sixty (60) days past the original date of invoice;
(iii) The Receivable arises from an enforceable contract
and the Borrower or applicable Granting Subsidiary is not in default
of the terms thereof;
(iv) the services or goods reflected on the applicable
invoice have been completely performed or delivered, as applicable, by
the Borrower, the applicable Granting Subsidiary, or the Franchisee
and the amounts reflected thereon are otherwise properly billable
(therefore, without limiting the foregoing, the Receivable does not
arise from contract work performed on jobs for which PMC is
contractually prohibited from billing the customer until such entire
job is completed);
(v) The Borrower or the applicable Granting Subsidiary
has good and indefeasible title to the Receivable and the Receivable
is not subject to any Lien except Liens in favor of the Agent;
(vi) The Receivable is subject to a first priority,
perfected Lien in favor of the Agent and is payable to a Lockbox
Account covered by an agreement of the type described in SECTION
7.1(p) of this Agreement;
(vii) The account debtor or other obligor thereunder is not
insolvent or the subject of any bankruptcy or insolvency proceeding
and has not made an assignment for the benefit of creditors, suspended
normal business operations, dissolved, liquidated,
CREDIT AGREEMENT - Page 6
<PAGE> 13
terminated its existence, ceased to pay its debts as they become due,
or suffered a receiver or trustee to be appointed for any of its
assets or affairs;
(viii) The Receivable is not evidenced by chattel paper or
an instrument;
(ix) The Borrower's, the applicable Granting Subsidiary's,
or the applicable Franchisee's performance of the contract to which
the Receivable relates is not assured by a performance, completion, or
other bond;
(x) The Receivable is not owed by an Affiliate of the
Borrower or the applicable Granting Subsidiary or a director, officer,
agent, stockholder or employee of Borrower or the applicable Granting
Subsidiary or by Borrower to a Granting Subsidiary or by a Granting
Subsidiary to Borrower or by one Granting Subsidiary to another;
(xi) The Receivable is payable in Dollars by the account
debtor or other obligor thereunder;
(xii) The account debtor or other Person obligated on such
Receivable is domiciled in the United States of America or, if not so
domiciled, the Receivable is backed by a satisfactory letter of credit
that is issued or confirmed by a bank located in the United States of
America that is acceptable to the Agent;
(xiii) Not more than twenty-five percent (25%) of the
aggregate amount of the Receivables owed by the account debtor or
other Person obligated thereon and its Affiliates to the Borrower and
the Granting Subsidiaries, on an aggregate basis, are more than sixty
(60) days past due from the dates of their original invoices;
(xiv) The account debtor or other Person obligated thereon
is not the United States of America or any department, agency, or
instrumentality thereof, unless the Federal Assignment of Claims Act
of 1940, as amended, shall have been complied with;
(xv) The Receivable does not constitute sums due for
cooperative advertising fees or promotion fund contributions billed to
or due from Franchisees; and
(xvi) The Receivable is not an Excluded Account. The term
"Excluded Account" means a Receivable that has been identified by the
Agent (by a notice to the Borrower) as being unacceptable for
inclusion in the Borrowing Base because the Agent has determined that
the account debtor or other Person obligated on such Receivable is not
creditworthy or that the Agent might not otherwise be able to receive
the full amount of the Receivable within a reasonable period of time
and at a reasonable cost of collection if it sought to realize on its
security interest therein, such determination to be made in the
Agent's judgment, in good faith and based on information which, in
its reasonable judgment, supports such determination.
The amount of the Eligible Accounts owed by an account debtor or other Person
to the Borrower or the applicable Granting Subsidiary shall be reduced by the
amount of all "contra accounts" and other obligations owed by the Borrower or
the applicable Granting Subsidiary to such
CREDIT AGREEMENT - Page 7
<PAGE> 14
account debtor or other Person, including without limitation, amounts owed as
rebates to Franchisees who have not entered into Paybill Arrangements. The
amount of the Eligible Accounts owed by an account debtor or other Person shall
be reduced by the amount thereof which is subject to any setoff, counterclaim,
defense, dispute, recoupment or other adjustment. The portion of any
Receivable constituting retainage that has been withheld by the account debtor
or other obligor shall not constitute an Eligible Account. If the aggregate
amount of the Receivables due from a single account debtor or other Person
obligated thereon exceeds an aggregate amount equal to ten percent (10%) of the
aggregate of all Receivables at the time of determination, the amount of the
excess shall be subtracted from all Eligible Accounts.
"ENVIRONMENTAL LAWS" means any and all federal, state, and local laws,
regulations, and requirements pertaining to health, safety, or the environment,
as such laws, regulations, and requirements may be amended or supplemented from
time to time.
"ENVIRONMENTAL LIABILITIES" means, as to any Person, all liabilities,
obligations, responsibilities, Remedial Actions, losses, damages, punitive
damages, consequential damages, treble damages, costs, and expenses,
(including, without limitation, all fees, disbursements and expenses of
counsel, expert and consulting fees and costs of investigation and feasibility
studies), fines, penalties, sanctions, and interest incurred as a result of any
claim or demand, by any Person, whether based in contract, tort, implied or
express warranty, strict liability, criminal or civil statute, including any
Environmental Law, permit, order or agreement with any Governmental Authority
or other Person, arising from environmental, health or safety conditions or the
Release or threatened Release of a Hazardous Material into the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and published interpretations
thereunder.
"ERISA AFFILIATE" means any corporation or trade or business which is
a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Borrower or is under common control (within
the meaning of Section 414(c) of the Code) with the Borrower.
"EVENT OF DEFAULT" has the meaning specified in SECTION 12.1 hereof.
"EXCESS CASH FLOW" means, for any period, the total of the following,
each calculated without duplication for the Borrower and the Subsidiaries on a
consolidated basis for such period: (a) EBITDA; LESS (b) cash income or
franchise taxes paid; LESS (c) Capital Expenditures not financed with Debt
permitted by SECTION 10.1(f); LESS (d) scheduled amortization of Debt actually
paid; less (e) cash interest expense paid; PLUS (f) any extraordinary or
nonrecurring cash gains, other cash gains attributable to asset dispositions
and noncash losses or charges which were excluded in determining Net Income;
LESS (g) any extraordinary cash losses, any nonrecurring cash losses, or other
cash losses attributable to asset dispositions and other cash charges which
were excluded in determining Net Income; LESS (h), to the extent otherwise
included in EBITDA, the cash proceeds from the sale of the stock or assets of
PMC.
"EXCESS CASH PERIOD" has the meaning set forth in Section 2.4 hereof.
CREDIT AGREEMENT - Page 8
<PAGE> 15
"FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/16 of 1%) equal to the weighted average
of the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Business Day next
succeeding such day, provided that (a) if the day for which such rate is to be
determined is not a Business Day, the Federal Funds Rate for such day shall be
such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day, and (b) if such rate is not so
published on such next succeeding Business Day, the Federal Funds Rate for any
day shall be the average rate charged to the Agent on such day on such
transactions as determined by the Agent.
"FIRST AMORTIZATION DATE" has the meaning set forth in Section 3.3
hereof.
"FISCAL QUARTERS" means the three (3)-month periods falling in each
Fiscal Year ending March 31, June 30, September 30, and December 31.
"FISCAL YEAR" means a twelve (12) month period ending December 31.
"FRANCHISEE" means any Person who has entered into a franchise
agreement with the Borrower in a form typically utilized by the Borrower in the
ordinary course of its business and which is in effect on the date in question.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, as set forth in Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants and/or in statements
of the Financial Accounting Standards Board and/or their respective successors
and which are applicable in the circumstances as of the date in question.
Accounting principles are applied on a "consistent basis" when the accounting
principles applied in a current period are comparable in all material respects
to those accounting principles applied in a preceding period.
"GENERAL PARTNER" means Nehemiah, Inc., a Texas corporation and
general partner of Arimathea.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state or
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory, or administrative functions of or pertaining to
government.
"GRANTING SUBSIDIARY" means any Subsidiary that is not an
Insignificant Subsidiary including, without limitation, APS and PMC.
"GUARANTEE" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (a) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation (whether arising by virtue of
partnership arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (b) entered into for
CREDIT AGREEMENT - Page 9
<PAGE> 16
the purpose of assuring in any other manner the obligee of such Debt or other
obligation of the payment thereof or to protect the obligee against loss in
respect thereof (in whole or in part), provided that the term Guarantee shall
not include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"GUARANTY" means the guaranty of a Granting Subsidiary in favor of the
Agent and the Banks, in substantially the form of EXHIBIT "D" hereto, as the
same may be amended or otherwise modified from time to time.
"HAZARDOUS MATERIAL" means any substance, product, waste, pollutant,
material, chemical, contaminant, constituent, or other material which is or
becomes listed, regulated, or addressed under any Environmental Law.
"INSIGNIFICANT SUBSIDIARY" means any Subsidiary whose (a) net worth
(calculated in accordance with GAAP) at the time of determination does not
exceed One Hundred Fifty Thousand Dollars ($150,000) and (b) total assets
(determined in accordance with GAAP) does not exceed an amount equal to one
percent (1%) of the total assets of the Borrower and the Subsidiaries
determined on a consolidated basis in accordance with GAAP.
"INTEREST PERIOD" means with respect to any Libor Accounts, each
period commencing on the date such Account is established or Converted from a
Base Rate Account or the last day of the next preceding Interest Period with
respect to such Libor Account, and ending on the numerically corresponding day
in the first, second, third or sixth calendar month thereafter, as the Borrower
may select as provided in SECTION 4.5 or 5.1 hereof, except that each such
Interest Period which commences on the last Business Day of a calendar month
(or on any day for which there is no numerically corresponding day in the
appropriate subsequent calendar month) shall end on the last Business Day of
the appropriate subsequent calendar month. Notwithstanding the foregoing: (a)
each Interest Period which would otherwise end on a day which is not a Business
Day shall end on the next succeeding Business Day (or if such succeeding
Business Day falls in the next succeeding calendar month, on the next preceding
Business Day); (b) any Interest Period which would otherwise extend beyond the
Termination Date shall end on the Termination Date; (c) no more than sixteen
(16) Interest Periods shall be in effect at the same time; (d) no Interest
Period for any Libor Account shall have a duration of less than one (1) month
and, if the Interest Period would otherwise be a shorter period, the related
Libor Account shall not be available hereunder; and (e) no Interest Period in
respect of an Acquisition Loan may extend beyond a principal repayment date
thereof unless, after giving effect thereto, the aggregate principal amount of
such Acquisition Loan subject to Libor Accounts having Interest Periods that
end after such principal payment date shall be equal to or less than the
aggregate principal amount of such Acquisition Loan to be outstanding hereunder
after such principal payment date.
"INTERIM INSTALLMENT AMOUNT" has the meaning set forth in SECTION 3.3
hereof.
"LETTER OF CREDIT LIABILITIES" means, at any time, the aggregate face
amounts of all outstanding Letters of Credit and all unreimbursed drawings
under Letters of Credit.
CREDIT AGREEMENT - Page 10
<PAGE> 17
"LETTERS OF CREDIT" has the meaning specified in SECTION 2.7(a)
hereof.
"LIBOR ACCOUNT" means a portion of a Loan that bears interest at a
rate based upon the Adjusted Libor Rate.
"LIBOR RATE" means, for any Libor Account for any Interest Period
therefor, the rate per annum (rounded upwards, if necessary, to the nearest
1/16 of 1%) offered to the Agent at approximately 11:00 a.m. London time (or as
soon thereafter as practicable) two Business Days prior to the first day of
such Interest Period by leading banks in the London interbank market of Dollar
deposits in immediately available funds having a term comparable to such
Interest Period and in an amount comparable to the principal amount of the
Libor Account applicable to the Agent to which such Interest Period relates.
If the Agent is not participating in a Libor Account during any Interest Period
therefor (pursuant to SECTION 6.4 hereof or for any other reason), the Adjusted
Libor Rate for such Account for such Interest Period shall be determined by
reference to the amount of the Accounts which the Agent would have made had it
been participating in such Account.
"LIBOR RATE MARGIN" has the meaning specified in SECTION 4.2 hereof.
"LIEN" means any lien, mortgage, security interest, tax lien,
financing statement, pledge, charge, hypothecation, assignment, preference,
priority, or other encumbrance of any kind or nature whatsoever (including,
without limitation, any conditional sale or title retention agreement), whether
arising by contract, operation of law, or otherwise.
"LOANS" means Revolving Loans or Acquisition Loans.
"LOAN DOCUMENTS" means this Agreement, the Notes, the Borrower
Security Agreement, the Borrower Pledge Agreement, the Guaranties, the
Subsidiary Security Agreements, the Shareholder Pledge Agreements, and all
other promissory notes, security agreements, deeds of trust, assignments,
guaranties, letters of credit, and other instruments, agreements and other
documentation executed and delivered pursuant to or in connection with this
Agreement, as such instruments, agreements and other documentation may be
amended or otherwise modified.
"LOCKBOX ACCOUNTS" shall mean the lockbox accounts described on
SCHEDULE 1.1(a) attached hereto and any other accounts established pursuant to
the Lockbox Agreements in which all funds received pursuant to the Lockbox
Agreements shall be deposited.
"LOCKBOX AGREEMENTS" shall mean the lockbox or other agreements
described on Schedule 1.1(a) attached hereto and any lockbox or other agreement
entered into by the Borrower or a Granting Subsidiary, with the Agent, any Bank
or any other depository institution acceptable to the Agent, pursuant to which
a lockbox and deposit account shall be established for the Borrower or a
Granting Subsidiary into which payments on the Borrower's or such Granting
Subsidiary's accounts or other Collateral shall be sent and deposited (except
accounts representing payment of promotional fund contributions by Franchisees
as specified in the Borrower Security Agreement or the applicable Subsidiary
Security Agreement), each in form and substance satisfactory to the Agent, as
the same may be amended or otherwise modified.
CREDIT AGREEMENT - Page 11
<PAGE> 18
"MATERIAL ADVERSE EFFECT" means (a) a material adverse effect on the
business, condition (financial or otherwise), operations, or properties of the
Borrower and the Subsidiaries taken as a whole; or (b) a material adverse
effect on the validity, perfection, priority or ability of the Agent to enforce
the Agent's Lien on the Collateral or of the ability of the Agent or any Bank
to enforce a material provision of the Loan Documents. In determining whether
any individual event could reasonably be expected to result in a Material
Adverse Effect, notwithstanding that such event does not itself have such
effect, a Material Adverse Effect shall be deemed to have occurred if the
cumulative effect of such event and all other then existing events could
reasonably be expected to result in a Material Adverse Effect.
"MATURITY DATE" has the meaning set forth in SECTION 3.3 hereof.
"MAXIMUM RATE" means, at any time and with respect to any Bank, the
maximum rate of nonusurious interest under applicable law that such Bank may
charge the Borrower. The Maximum Rate shall be calculated in a manner that
takes into account any and all fees, payments, and other charges contracted
for, charged or received in connection with the Loan Documents that constitute
interest under applicable law. Each change in any interest rate provided for
herein based upon the Maximum Rate resulting from a change in the Maximum Rate
shall take effect without notice to the Borrower at the time of such change in
the Maximum Rate. For purposes of determining the Maximum Rate under Texas
law, the applicable rate ceiling shall be the indicated rate ceiling described
in, and computed in accordance with, Article 5069-1.04, Vernon's Texas Civil
Statutes.
"MONTHLY PAYMENT DATE" means the first day of each month, the first of
which shall be March 1, 1996.
"MULTIEMPLOYER PLAN" means a multiemployer plan defined as such in
Section 3(37) of ERISA to which contributions have been made by the Borrower or
any ERISA Affiliate and which is covered by Title IV of ERISA.
"NET INCOME" means, for any period and any Person, such Person's
consolidated net income (or loss), but excluding: (a) the income of any other
Person (other than its subsidiaries) in which such Person or any of it
subsidiaries has an ownership interest, unless received by such Person or its
subsidiary in a cash distribution; (b) any after-tax gains or losses
attributable to asset disposition; (c) to the extent not included in clauses
(a) and (b) above, any after-tax extraordinary, non-cash or nonrecurring gains
or losses; and (d) non-cash or nonrecurring charges due to changes in
accounting principles required by GAAP.
"NET INTEREST EXPENSE" means, for any period and any Person, the total
of the following for such Person calculated on a consolidated basis for such
period: (a) interest expense minus (b) interest income.
"NOTES" means the Revolving Notes and the Acquisition Notes.
"OBLIGATED PARTY" means the Granting Subsidiaries, Shareholders, or
any other Person (exclusive of the Borrower) who is or becomes party to any
agreement that guarantees or secures payment and performance of the Obligations
or any part thereof.
CREDIT AGREEMENT - Page 12
<PAGE> 19
"OBLIGATION" means all obligations, indebtedness, and liabilities of
the Borrower to the Agent and the Banks, or any of them, arising pursuant to
any of the Loan Documents, pursuant to any interest rate swap, interest rate
caps, interest rate collars or other similar agreements entered into with the
Borrower or any Subsidiary enabling it to fix or limit its interest expense or
pursuant to any foreign exchange, currency hedging, commodity hedging or other
agreement entered into with the Borrower or any Subsidiary enabling it to limit
the market risk of holding currency or a commodity in either the cash or
futures markets, whether now existing or hereafter arising, whether direct,
indirect, related, unrelated, fixed, contingent, liquidated, unliquidated,
joint, several, or joint and several, including, without limitation, the
obligation of the Borrower to repay the Loans, the Reimbursement Obligations,
interest on the Loans and Reimbursement Obligations, and all fees, costs, and
expenses (including attorneys' fees) provided for in the Loan Documents or such
agreements enabling Borrower to fix or limit its interest expense.
"OUTSTANDING REVOLVING CREDIT" means, at any time of determination,
the sum of (a) the aggregate amount of Revolving Loans then outstanding; plus
(b) the aggregate amount of Letter of Credit Liabilities (or when calculated
with respect to a Bank, including the Agent as a Bank, such Bank's
participation or other interest in such Letter of Credit Liabilities).
"PAYBILL ARRANGEMENT" means the agreement between the Borrower or a
Granting Subsidiary and a Franchisee pursuant to which the Franchisee has
agreed (a) to permit Borrower or a Granting Subsidiary to perform all
invoicing, collection, and payroll services for the Franchisee and (b) that
legal title to all accounts arising from services performed by the Franchisee
are held by Borrower or a Granting Subsidiary.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to all or any of its functions under ERISA.
"PERMITTED ACQUISITIONS" shall mean acquisitions of a Person or all or
substantially all of (a) such Person's assets or (b) the assets of a division
or branch of such Person, in each case, in a transaction that satisfies all the
applicable criteria set out in SUBSECTION 7.2(b) AND (c) hereof.
"PERMITTED STOCK REPURCHASE" means a repurchase by Borrower of its
common stock in a transaction permitted by Section 10.4 (iii).
"PERSON" means any individual, corporation, business trust,
association, company, partnership, joint venture, Governmental Authority, or
other entity.
"PLAN" means any employee benefit plan established or maintained by
the Borrower or any ERISA Affiliate and which is covered by Title IV of ERISA.
"PMC" means Plant Maintenance, Inc. of California, a California
corporation.
"PREVIOUS SENIOR DEBT" means all the obligations, indebtedness and
liability of the Borrower and its Subsidiaries arising under or pursuant to (a)
that certain Credit Agreement dated January 12, 1994 among the Borrower, PMC,
APS and Texas Commerce Bank National Association, as the same has been amended
by a First Amendment to Credit Agreement dated October 31, 1994 and by a Second
Amendment to Credit Agreement dated October 31, 1995 and
CREDIT AGREEMENT - Page 13
<PAGE> 20
(b) any of the documentation executed in connection with the credit agreement
described in clause (a) above, including, without limitation, all such
documentation relating to any interest rate swap, cap, or collar agreement or
other agreements enabling the Borrower to fix or limit its interest expense.
"PRIMARY REVOLVING ACQUISITION SUBLIMIT" has the meaning specified in
Section 2.4 hereof.
"PRINCIPAL OFFICE" means the principal office of the Agent, located at
100 Federal Street, Boston, Massachusetts 02110.
"PRIOR TARGET" means all Targets acquired or whose assets have been
acquired in a Permitted Acquisition.
"PROHIBITED TRANSACTION" means any transaction set forth in Section
406 or 407 of ERISA or Section 4975(c)(1) of the Code for which there does not
exist a statutory or administrative exemption.
"PURCHASE AGREEMENT" has the meaning specified in SUBSECTION 7.2(a)
hereof.
"PURCHASE PRICE" means, as of any date of determination and with
respect to a proposed acquisition, the purchase price to be paid for the Target
or its assets, including all cash consideration paid (whether classified as
purchase price, noncompete payments or otherwise) and the Dollar value of all
other assets to be transferred by the purchaser in connection with such
acquisition to the seller (including any stock issued to the seller) all valued
in accordance with the applicable Purchase Agreement.
"QUARTERLY PAYMENT DATE" means the first day of January, April, July
and October of each year, the first of which shall be the first such day after
the date of this Agreement.
"RECEIVABLE" has the meaning specified in the definition of Eligible
Accounts.
"REGULATION D" means Regulation D of the Board of Governors of the
Federal Reserve System as the same may be amended or supplemented from time to
time.
"REGULATORY CHANGE" means, with respect to any Bank, any change after
the date of this Agreement in United States federal, state, or foreign laws or
regulations (including Regulation D) or the adoption or making after such date
of any interpretations, directives, or requests applying to a class of banks
including such Bank of or under any United States federal or state, or any
foreign, laws or regulations (whether or not having the force of law) by any
court or governmental or monetary authority charged with the interpretation or
administration thereof.
"REIMBURSEMENT OBLIGATION" means the obligation of the Borrower to
reimburse the Agent for any demand for payment or drawing under a Letter of
Credit.
"RELEASE" means, as to any Person, any release, spill, emission,
leaking, pumping, injection, deposit, disposal, disbursement, leaching, or
migration of Hazardous Materials into
CREDIT AGREEMENT - Page 14
<PAGE> 21
the indoor or outdoor environment or into or out of property owned by such
Person, including, without limitation, the movement of Hazardous Materials
through or in the air, soil, surface water, ground water, or property in
violation of Environmental Laws.
"REMEDIAL ACTION" means all actions required to (a) cleanup, remove,
treat, or otherwise address Hazardous Materials in the indoor or outdoor
environment, (b) prevent the Release or threat of Release or minimize the
further Release of Hazardous Materials so that they do not migrate or endanger
or threaten to endanger public health or welfare or the indoor or outdoor
environment, or (c) perform pre-remedial studies and investigations and
post-remedial monitoring and care.
"REQUIRED BANKS" means Banks having (a) sixty-six and two-thirds
percent (66 2/3%) or more of the Commitments or (b) if the Acquisition
Commitments have terminated or have otherwise been fulfilled, sixty-six and
two-thirds percent (66 2/3%) or more of the Revolving Commitments and the
aggregate outstanding principal amount of the Acquisition Loans or (c) if all
Commitments have terminated, sixty-six and two-thirds percent (66 2/3%) or more
of the outstanding principal amount of the Loans and participations in the
Letters of Credit.
"REPORTABLE EVENT" means any of the events set forth in Section 4043
of ERISA for which the 30-day notice requirement has not been waived by the
PBGC.
"RESERVE REQUIREMENT" means, for any Libor Account for any Interest
Period therefor, the average maximum rate at which reserves (including any
marginal, supplemental or emergency reserves) are required to be maintained
during such Interest Period under Regulation D by member banks of the Federal
Reserve System in New York City with deposits exceeding one billion Dollars
against "Eurocurrency Liabilities" as such term is used in Regulation D.
Without limiting the effect of the foregoing, the Reserve Requirement shall
reflect any other reserves required to be maintained by such member banks by
reason of any Regulatory Change against any category of liabilities which
includes deposits by reference to which the Adjusted Libor Rate is to be
determined or any category of extensions of credit or other assets which
include Libor Accounts.
"REVOLVING COMMITMENT" means, as to each Bank, the obligation of such
Bank to make advances of funds and purchase participation interests in (or with
respect to the Agent as a Bank, hold other interests in) Letters of Credit in
an aggregate principal amount at any one time outstanding up to but not
exceeding the amount set forth opposite the name of such Bank on the signature
pages hereto under the heading "Revolving Commitment", as the same may be
reduced or terminated pursuant to SECTION 2.6 or SECTION 12.2 hereof. The
aggregate amount of the Revolving Commitments of all Banks equals Fifteen
Million Dollars ($15,000,000).
"REVOLVING ACQUISITION SUBLIMITS" means the Primary Revolving
Acquisition Sublimit and the Secondary Revolving Acquisition Sublimit.
"REVOLVING LOANS" means, as to any Bank, the advances made by such
Bank pursuant to SECTION 2.1 hereof.
CREDIT AGREEMENT - Page 15
<PAGE> 22
"REVOLVING NOTES" means the promissory notes provided for by SECTION
2.2 hereof and all amendments or other modifications thereof.
"SECONDARY REVOLVING ACQUISITION SUBLIMIT" has the meaning specified
in SECTION 2.4 hereof.
"SENIOR DEBT" means, at any time, the sum of: (a) the Outstanding
Revolving Credit and (b) the Acquisition Loans.
"SHAREHOLDER" means Robert O. Snelling, Sr., Anne E. Snelling,
Arimathea and any Person who acquires shares of capital stock of Borrower from
Robert O. Snelling, Sr., Anne E. Snelling or Arimathea in a transaction
permitted by SECTION 3.3 (a) of the applicable Shareholder Pledge Agreement.
"SHAREHOLDER PLEDGE AGREEMENT" means the pledge agreement between a
Shareholder and the Agent for the benefit of itself and the Banks, in the form
of EXHIBIT "J" hereto, as the same may be amended or otherwise modified.
"SUBSIDIARY" means any corporation (or other entity) of which at least
a majority of the outstanding shares of stock (or other ownership interests)
having by the terms thereof ordinary voting power to elect a majority of the
board of directors (or similar governing body) of such corporation (or other
entity) (irrespective of whether or not at the time stock (or other ownership
interests) of any other class or classes of such corporation (or other entity)
shall have or might have voting power by reason of the happening of any
contingency) is at the time directly or indirectly owned or controlled by the
Borrower or one or more of the Subsidiaries or by the Borrower and one or more
of the Subsidiaries.
"SUBSIDIARY SECURITY AGREEMENTS" means the security agreement between
a Granting Subsidiary and the Agent for the benefit of itself and the Banks, in
substantially the form of EXHIBIT "G" hereto, as the same may be amended or
otherwise modified.
"TARGET" has the meaning specified in SECTION 7.2 hereto.
"TERMINATION DATE" means January 31, 2001, or such earlier date on
which the Commitments terminate as provided in this Agreement.
"TOTAL FUNDED DEBT" means, at the time of determination, the sum of
all the Debt of Borrower and the Subsidiaries determined on a consolidated
basis.
"TOTAL FUNDED DEBT TO ADJUSTED EBITDA RATIO" means the ratio
calculated in accordance with Section 11.3 hereof.
"TYPE" means either type of Account (i.e., either a Base Rate Account
or Libor Account).
"UCC" means the Uniform Commercial Code as in effect in the State of
Texas.
CREDIT AGREEMENT - Page 16
<PAGE> 23
"VOTING CONTROL CERTIFICATE" means a certificate in substantially the
form of EXHIBIT "K" hereto.
Section 1.2 OTHER DEFINITIONAL PROVISIONS. All definitions
contained in this Agreement are equally applicable to the singular and plural
forms of the terms defined. The words "hereof", "herein", and "hereunder" and
words of similar import referring to this Agreement refer to this Agreement as
a whole and not to any particular provision of this Agreement. Unless
otherwise specified, all Article and Section references pertain to this
Agreement. Terms used herein that are defined in the UCC, unless otherwise
defined herein, shall have the meanings specified in the UCC.
Section 1.3 ACCOUNTING TERMS AND DETERMINATIONS. Except as
otherwise expressly provided herein, all accounting terms used herein shall be
interpreted, and all financial statements and certificates and reports as to
financial matters required to be delivered to the Agent and the Banks hereunder
shall be prepared, in accordance with GAAP, on a basis consistent with those
used in the preparation of the financial statements referred to in SECTION 8.2
hereof. All calculations made for the purposes of determining compliance with
the provisions of this Agreement shall be made by application of GAAP, on a
basis consistent with those used in the preparation of the financial statements
referred to in SECTION 8.2 hereof. To enable the ready and consistent
determination of compliance by the Borrower with its obligations under this
Agreement, the Borrower will not change the manner in which either the last day
of its Fiscal Year or the last days of the first three Fiscal Quarters of its
Fiscal Years is calculated. In the event any changes in accounting principles
required by GAAP or recommended by Borrower's certified public accountants and
implemented by Borrower occur and such changes result in a change in the method
of the calculation of financial covenants, standards or terms under this
Agreement, then the Borrower, the Agent and the Banks agree to enter into
negotiations in order to amend such provisions of this Agreement so as to
equitably reflect such changes with the desired result that the criteria for
evaluating such covenants, standards or terms shall be the same after such
changes as if such changes had not been made. Until such time as such an
amendment shall have been executed and delivered by the Agent, the Borrower and
the Banks, all financial covenants, standards and terms in this Agreement shall
continue to be calculated or construed as if such changes had not occurred.
Section 1.4 TIME OF DAY. Unless otherwise indicated, all
references in this Agreement to times of day shall be references to Boston,
Massachusetts time.
ARTICLE 2
REVOLVING CREDIT FACILITY
Section 2.1 REVOLVING COMMITMENTS. Subject to the terms and
conditions of this Agreement, each Bank severally agrees to make Revolving
Loans to the Borrower from time to time from and including the Closing Date to
but excluding the Termination Date in an aggregate principal amount at any time
outstanding up to but not exceeding the amount of such Bank's Revolving
Commitment as then in effect; PROVIDED, HOWEVER, (a) the Outstanding Revolving
Credit applicable to a Bank (including the Agent as a Bank) shall not at any
time exceed such Bank's Revolving Commitment and (b) the Outstanding Revolving
Credit shall not at any time
CREDIT AGREEMENT - Page 17
<PAGE> 24
exceed the lesser of (i) the aggregate Revolving Commitments or (ii) the sum of
the Borrowing Base minus the Agency Account Reserve. Subject to the foregoing
limitations, and the other terms and provisions of this Agreement, the Borrower
may borrow, prepay, and reborrow hereunder the amount of the Revolving
Commitments and may establish Base Rate Accounts and Libor Accounts thereunder
and, until the Termination Date, the Borrower may Continue Libor Accounts
established under the Revolving Loans or Convert Accounts established under the
Revolving Loans of one Type into Accounts of the other Type. Accounts of each
Type under the Revolving Loan made by each Bank shall be established and
maintained at such Bank's Applicable Lending Office for Revolving Loans of such
Type.
Section 2.2 NOTES. The Revolving Loans made by a Bank shall be
evidenced by a single promissory note of the Borrower in substantially the form
of Exhibit "A" hereto, dated the date hereof, payable to the order of such Bank
in a principal amount equal to its Revolving Commitment as originally in effect
and otherwise duly completed.
Section 2.3 REPAYMENT OF REVOLVING LOANS. The Borrower shall pay
to the Agent, for the account of the Banks, the outstanding principal amount of
all of the Revolving Loans on the Termination Date.
Section 2.4 USE OF PROCEEDS. The proceeds of the Revolving Loans
shall be used by the Borrower to repay the Previous Senior Debt, to finance the
Borrower's and the Granting Subsidiaries' working capital and capital
expenditure requirements in the ordinary course of business, including, without
limitation, the satisfaction of Reimbursement Obligations in accordance with
SUBSECTION 2.7(b) hereof, and for other general corporate purposes; PROVIDED,
HOWEVER, the Borrower's use of proceeds of the Revolving Loans to finance
Permitted Acquisitions shall be subject to the following limitations:
(a) the aggregate amount of the Revolving Loans
outstanding at any time which were utilized to finance Permitted
Acquisitions and which were not advanced under the Secondary Revolving
Acquisition Sublimit shall not exceed the Primary Revolving
Acquisition Sublimit;
(b) no Revolving Loans shall be made to finance Permitted
Acquisitions pursuant to the Primary Revolving Acquisition Sublimit
after the Acquisition Availability Termination Date; and
(c) the aggregate cumulative amount of Revolving Loans
utilized to finance Permitted Acquisitions which were not advanced
under the Primary Revolving Acquisition Sublimit shall not exceed the
Secondary Revolving Acquisition Sublimit.
The term "PRIMARY REVOLVING ACQUISITION SUBLIMIT" means, at any time
of determination, Five Million Dollars ($5,000,000) and the term "SECONDARY
REVOLVING ACQUISITION SUBLIMIT" means, on any date of determination, the sum
of:
(i) the sum of the following calculated for the Excess
Cash Period in existence at the date of determination:
CREDIT AGREEMENT - Page 18
<PAGE> 25
(A) Twenty-Five Percent (25%) of the sum of (1)
the Borrower's Excess Cash Flow as such Excess Cash Flow has
then most recently been calculated for purposes of SUBSECTION
5.4(a)(ii) hereof as of the date of determination, beginning
with the initial calculation thereof for the payment due May
15, 1997, MINUS (2) all optional prepayments of the
Acquisition Loans made in the prior Excess Cash Period; MINUS
(B) the aggregate amount of all Revolving Loans
made under the Secondary Revolving Acquisition Sublimit during
such Excess Cash Period which were designated as "Excess Cash
Advances" in accordance with SECTION 5.3 hereof (for purposes
of this clause (i), the term "EXCESS CASH PERIOD" means a
period from May 15 of one year through May 15 of the next);
PLUS
(ii) the sum of (A) the net cash proceeds received by
Borrower or PMC from the sale of the assets or stock of PMC on or
prior to such date of determination which were utilized to reduce the
outstanding Revolving Loans at the time of such sale, MINUS (B) the
aggregate amount of all Revolving Loans made under the Secondary
Revolving Acquisition Sublimit which were designated as "PMC Proceed
Advances" in accordance with SECTION 5.3 hereof to the date of
determination.
Borrower may borrow Revolving Loans under the Primary Revolving Acquisition
Sublimit, repay such Revolving Loans either directly or through a refinancing
under the Acquisition Commitment and reborrow thereunder; provided that
Borrower may not reborrow thereunder to finance Permitted Acquisitions after
the Acquisition Availability Termination Date.
Section 2.5 REVOLVING COMMITMENT FEE. The Borrower agrees to pay
to the Agent for the account of each Bank a commitment fee on the daily average
unused amount of such Bank's Revolving Commitment for the period from and
including the Closing Date to and including the Termination Date, at a rate
equal to the Commitment Fee Rate as determined in accordance with subsection
4.2(b) hereof. Accrued commitment fees under this Section 2.5 shall be payable
in arrears on each Quarterly Payment Date and on the Termination Date.
Section 2.6 TERMINATION OR REDUCTION OF REVOLVING COMMITMENTS.
The Borrower shall have the right to terminate fully or to reduce in part the
unused portion of the Revolving Commitments at any time and from time to time,
PROVIDED that: (a) the Borrower shall give the Agent at least three (3)
Business Days notice of each such termination or reduction as provided in
SECTION 5.3 hereof; and (b) each partial reduction shall be in an aggregate
amount at least equal to One Million Dollars ($1,000,000) or a greater multiple
of One Hundred Thousand Dollars ($100,000). The Revolving Commitments may not
be reinstated after they have been terminated or reduced.
Section 2.7 LETTERS OF CREDIT.
(a) COMMITMENT TO ISSUE. The Borrower may utilize the
Revolving Commitments by requesting that the Agent issue, and the
Agent, subject to the terms and conditions of this Agreement, shall
issue, letters of credit for Borrower's or one of its Subsidiaries'
account (such letters of credit being hereinafter referred to as the
"LETTERS
CREDIT AGREEMENT - Page 19
<PAGE> 26
OF CREDIT"); PROVIDED, HOWEVER, (i) the aggregate amount of
outstanding Letter of Credit Liabilities shall not at any time exceed
Seven Million Five Hundred Thousand Dollars ($7,500,000); (ii) the
Outstanding Revolving Credit shall not at any time exceed the lesser of
(A) the aggregate Revolving Commitments or (B) the sum of the Borrowing
Base minus the Agency Account Reserve; and (iii) the Outstanding
Revolving Credit applicable to a Bank shall not at any time exceed such
Bank's Revolving Commitment. Upon the date of issue of a Letter of
Credit, the Agent shall be deemed, without further action by any party
hereto, to have sold to each other Bank, and each other Bank shall be
deemed, without further action by any party hereto, to have purchased
from the Agent a participation to the extent of such Bank's Commitment
Percentage in such Letter of Credit and the related Letter of Credit
Liabilities.
(b) LETTER OF CREDIT REQUEST PROCEDURE. Except for
Letters of Credit issued on the Closing Date, the Borrower shall give
the Agent at least three (3) Business Days irrevocable prior notice
(effective upon receipt) specifying the date of each Letter of Credit
and the nature of the transactions to be supported thereby. Upon
receipt of such notice the Agent shall promptly notify each other Bank
of the contents thereof and of such Bank's Commitment Percentage of
the amount of the proposed Letter of Credit. Each Letter of Credit
shall have an expiration date that does not extend beyond a date which
is thirty (30) days prior to the Termination Date, shall be payable in
Dollars, must support a transaction entered into in the ordinary
course of the Borrower's business, must be satisfactory in form and
substance to the Agent, and shall be issued pursuant to such
documentation as the Agent may require, including, without limitation,
the Agent's standard form letter of credit request and reimbursement
agreement; PROVIDED, that, in the event of any conflict between the
terms of such agreement and the other Loan Documents, the terms of the
other Loan Documents shall control.
(c) LETTER OF CREDIT FEES. The Borrower will pay to the
Agent for the account of each Bank a letter of credit fee on such
Bank's Commitment Percentage of the amount available for drawings
under each Letter of Credit, such letter of credit fee (i) to be paid
annually in advance on the date of the issuance of the Letter of
Credit and on each anniversary of the date of its issuance thereafter
until the date of expiration or termination thereof (each such date
herein a "PAYMENT DATE") and (ii) to be calculated for the period from
and including one Payment Date to and excluding the next at a rate
equal to one and one half percent (1.50%) per annum. After receiving
any payment of any letter of credit fees under this clause (c), the
Agent will promptly pay to each Bank the letter of credit fees then
due such Bank. With respect to each Letter of Credit, the Borrower
will also pay to the Agent for its account only and on each Payment
Date applicable to a Letter of Credit, a fronting fee per annum equal
to one-eighth of one percent (0.125%) of the maximum amount available
to be drawn under the Letter of Credit. The Borrower will also pay to
the Agent, for its account only, all customary fees for amendments to
and processing of the Letters of Credit.
(d) FUNDING OF DRAWINGS. Upon receipt from the
beneficiary of any Letter of Credit of any demand for payment or other
drawing under such Letter of Credit, the Agent shall promptly notify
the Borrower and each Bank as to the amount to be paid as a result of
such demand or drawing and the respective payment date. Not later
than
CREDIT AGREEMENT - Page 20
<PAGE> 27
11:00 a.m. on the applicable payment date, each Bank will make
available to the Agent, at the Principal Office, in immediately
available funds, an amount equal to such Bank's Commitment Percentage
of the amount to be paid as a result of such demand or drawing even if
the conditions to a Loan under Article 7 hereof have not been
satisfied
(e) REIMBURSEMENTS. The Borrower shall be irrevocably
and unconditionally obligated to immediately reimburse the Agent for
any amounts paid by the Agent upon any demand for payment or drawing
under any Letter of Credit, without presentment, demand, protest, or
other formalities of any kind. All payments on the Reimbursement
Obligations shall be made to the Agent at the Principal Office for the
account of the Agent in Dollars and in immediately available funds,
without setoff, deduction or counterclaim not later than 3:00 pm. on
the date of the corresponding payment under the Letter of Credit by
the Agent; provided, that Agent has provided notice to Borrower prior
to 12:00 noon on such day that such payment is due. In the event such
notice is received after 12:00 noon on a Business Day, such payment
shall be due not later than 3:00 p.m. on the next succeeding Business
Day. Subject to the other terms and conditions of this Agreement,
such reimbursement may be made by Borrower requesting a Revolving Loan
in accordance with SECTION 5.1 hereof the proceeds of which shall be
credited against the Borrower's Reimbursement Obligations. The Agent
will pay to each Bank such Bank's Commitment Percentage of all amounts
received from the Borrower for application in payment, in whole or in
part, to the Reimbursement Obligation in respect of any Letter of
Credit, but only to the extent such Bank has made payment to the Agent
in respect of such Letter of Credit pursuant to clause (d) of this
SECTION 2.7.
(f) REIMBURSEMENT OBLIGATIONS ABSOLUTE. The
Reimbursement Obligations of the Borrower under this Agreement shall
be absolute, unconditional, and irrevocable, and shall be performed
strictly in accordance with the terms of the Loan Documents under all
circumstances whatsoever and the Borrower hereby waives any defense to
the payment of the Reimbursement Obligations based on any circumstance
whatsoever, including without limitation, in either case, the
following circumstances: (i) any lack of validity or enforceability of
any Letter of Credit or any other Loan Document; (ii) any amendment
or waiver of or any consent to departure from any Loan Document; (iii)
the existence of any claim, set-off, counterclaim, defense or other
rights which the Borrower, any Obligated Party, or any other Person
may have at any time against any beneficiary of any Letter of Credit,
the Agent, any Bank, or any other Person, whether in connection with
any Loan Document or any unrelated transaction; (iv) any statement,
draft, or other documentation presented under any Letter of Credit
proving to be forged, fraudulent, invalid, or insufficient in any
respect or any statement therein being untrue or inaccurate in any
respect whatsoever; (v) payment by the Agent under any Letter of
Credit against presentation of a draft or other document that does not
comply with the terms of such Letter of Credit; or (vi) any other
circumstance whatsoever, whether or not similar to any of the
foregoing; PROVIDED that Reimbursement Obligations with respect to a
Letter of Credit may be subject to avoidance by the Borrower if the
Borrower proves in a final nonappealable judgment that it was damaged
and that such damage arose directly from the Agent's willful
misconduct or gross negligence in determining whether the
documentation presented under the Letter of Credit in question
complied with the terms thereof.
CREDIT AGREEMENT - Page 21
<PAGE> 28
(g) ISSUER RESPONSIBILITY. The Borrower assumes all
risks of the acts or omissions of any beneficiary of any Letter of
Credit with respect to its use of such Letter of Credit. Neither the
Agent, any Bank nor any of their respective officers or directors
shall have any responsibility or liability to the Borrower or any
other Person for: (a) the failure of any draft to bear any reference
or adequate reference to any Letter of Credit, or the failure of any
documents to accompany any draft at negotiation, or the failure of any
Person to surrender or to take up any Letter of Credit or to send
documents apart from drafts as required by the terms of any Letter of
Credit, or the failure of any Person to note the amount of any
instrument on any Letter of Credit, each of which requirements, if
contained in any Letter of Credit itself, it is agreed may be waived
by the Agent; (b) errors, omissions, interruptions, or delays in
transmission or delivery of any messages; (c) the validity,
sufficiency, or genuineness of any draft or other document, or any
endorsement(s) thereon, even if any such draft, document or
endorsement should in fact prove to be in any and all respects
invalid, insufficient, fraudulent, or forged or any statement therein
is untrue or inaccurate in any respect; (d) the payment by the Agent
to the beneficiary of any Letter of Credit against presentation of any
draft or other document that does not comply with the terms of the
Letter of Credit; or (e) any other circumstance whatsoever in making
or failing to make any payment under a Letter of Credit. The Borrower
shall have a claim against the Agent, and the Agent shall be liable to
the Borrower, to the extent of any direct, but not indirect,
consequential or punitive, damages suffered by the Borrower which the
Borrower proves in a final nonappealable judgment were caused by (i)
the Agent's willful misconduct or gross negligence in determining
whether documents presented under any Letter of Credit complied with
the terms thereof or (ii) the Agent's willful failure to pay under any
Letter of Credit after presentation to it of documentation strictly
complying with the terms and conditions of such Letter of Credit. The
Agent may accept documents that appear on their face to be in order,
without responsibility for further investigation, regardless of any
notice or information to the contrary.
ARTICLE 3
ACQUISITION LOANS
Section 3.1 ACQUISITION COMMITMENTS. Subject to the terms and
conditions of this Agreement, each Bank severally agrees to make one or more
advances to the Borrower from time to time from and including the Closing Date
to but excluding the Acquisition Availability Termination Date in an aggregate
principal amount at any time outstanding up to but not exceeding the amount of
such Bank's Acquisition Commitment as then in effect. Subject to the foregoing
limitations, and the other terms and provisions of this Agreement, until the
Acquisition Availability Termination Date, the Borrower may borrow the amount
of the Acquisition Commitments and may establish Base Rate Accounts or Libor
Accounts thereunder and, until the Termination Date, the Borrower may Continue
Libor Accounts established under the Acquisition Loans or Convert Accounts
established under the Acquisition Loans of one Type into Accounts of another
Type. Accounts of each Type established under the Acquisition Loans made by
each Bank shall be made and maintained at such Bank's Applicable Lending Office
for Accounts of such Type. Once an Acquisition Loan has been repaid it may not
be reborrowed.
CREDIT AGREEMENT - Page 22
<PAGE> 29
Section 3.2 ACQUISITION NOTES. The Acquisition Loans made by a
Bank shall be evidenced by a single promissory note of the Borrower in
substantially the form of EXHIBIT "B" hereto, dated the date hereof, payable to
the order of such Bank in a principal amount equal to its Acquisition
Commitment as originally in effect and otherwise duly completed.
Section 3.3 REPAYMENT OF ACQUISITION LOANS. The Borrower shall
pay to the Agent for the account of the Banks the outstanding principal amount
of each Acquisition Loan in installments as follows:
(a) one (1) principal installment equal to the Interim
Installment Amount (as defined below) shall be due and payable on the
First Amortization Date (as defined below); and thereafter
(b) equal quarterly principal installments shall be due
and payable on each Quarterly Payment Date after the First
Amortization Date until but excluding the Maturity Date in the amount
equal to the Amortization Amount (as defined below); and thereafter
(c) a final installment in the amount of all outstanding
principal shall be due and payable on the Maturity Date (as defined
below).
The following terms shall have the following meanings determined with
respect to each Acquisition Loan:
"AMORTIZATION AMOUNT" means an amount equal to the quotient
obtained by dividing the original principal amount of the Acquisition
Loan by twenty (20).
"FIRST AMORTIZATION DATE" means the first Quarterly Payment
Date following the date the Acquisition Loan is advanced.
"INTERIM INSTALLMENT AMOUNT" means an amount equal to the
product of (a) multiplied by (b), where (a) equals the quotient
obtained by dividing the Amortization Amount by ninety (90) and (b)
equals the number of days between the date the Acquisition Loan was
advanced and the next Quarterly Payment Date.
"MATURITY DATE" means the earlier of (a) the Termination Date
or (b) the Quarterly Payment Date which is twenty (20) Quarterly
Payment Dates after the Acquisition Loan is made.
Section 3.4 USE OF PROCEEDS OF ACQUISITION LOANS. The proceeds
of Acquisition Loans shall be used by the Borrower to make Permitted
Acquisitions and to refinance Revolving Loans utilized to make Permitted
Acquisitions in accordance with the restriction under SECTION 2.4 hereof.
Section 3.5 ACQUISITION COMMITMENT FEE. The Borrower agrees to
pay to the Agent for the account of each Bank a commitment fee on the daily
average unused amount of such
CREDIT AGREEMENT - Page 23
<PAGE> 30
Bank's Acquisition Commitment for the period from and including the Closing
Date to and including the Acquisition Availability Termination Date, at the
rate of one-half percent (0.500%) per annum. Accrued commitment fees payable
under this SECTION 3.5 shall be payable in arrears on each Quarterly Payment
Date and on the Acquisition Availability Termination Date.
Section 3.6 TERMINATION OR REDUCTION OF ACQUISITION COMMITMENTS.
The Borrower shall have the right to terminate fully or to reduce in part the
unused portion of the Acquisition Commitments at any time and from time to
time, PROVIDED that: (a) the Borrower shall give the Agent at least three (3)
Business Days notice of each such termination or reduction as provided in
SECTION 5.3 hereof; and (b) each partial reduction shall be in an aggregate
amount at least equal to One Million Dollars ($1,000,000) or a greater multiple
of One Hundred Thousand Dollars ($100,000). The Acquisition Commitments may
not be reinstated after they have been terminated or reduced.
ARTICLE 4
Interest and Fees
Section 4.1 INTEREST RATE. The Borrower shall pay to the Agent
for the account of each Bank interest on the unpaid principal amount of each
Loan made by such Bank for the period commencing on the date of such Loan to
but excluding the date such Loan is due, at a fluctuating rate per annum equal
to the Applicable Rate. The term "APPLICABLE RATE" means:
(a) with respect to the Revolving Loans, (i) during the
period that such Loans or portions thereof are subject to a Base Rate
Account, the Base Rate plus the Base Margin and (ii) during the period
that such Loans or portions thereof are subject to a Libor Account,
the Adjusted Libor Rate plus the Libor Rate Margin; and
(b) with respect to the Acquisition Loans, (i) during the
period that such Loans or portions thereof are subject to a Base Rate
Account, the Base Rate plus the Base Margin and (ii) during the period
that such Loans or portions thereof are subject to a Libor Account,
the Adjusted Libor Rate plus the Libor Rate Margin.
Section 4.2 DETERMINATIONS OF MARGINS AND FEES. The margins
identified in SECTION 4.1 and the fees payable under Section 2.5 hereof shall
be defined and determined as follows:
(a) "BASE MARGIN" shall mean (i) during the period
commencing on the Closing Date and ending on but not including the
first Adjustment Date (as defined below), one-half percent (0.5%) per
annum for Revolving Loans and one percent (1%) per annum for
Acquisition Loans and (ii) during each period, from and including one
Adjustment Date to but excluding the next Adjustment Date (herein a
"CALCULATION PERIOD"), the percent per annum set forth in the table
below in this SECTION 4.2 under the heading "Base Margin", under the
heading for the applicable Loan and opposite the Total
CREDIT AGREEMENT - Page 24
<PAGE> 31
Funded Debt to Adjusted EBITDA Ratio calculated for the completed four
(4) Fiscal Quarters which immediately preceded the beginning of the
applicable Calculation Period.
(b) "COMMITMENT FEE RATE" shall mean (i) during the
period commencing on the Closing Date and ending on but not including
the first Adjustment Date (as defined below), three-eighths of one
percent (0.375%) per annum; and (ii) during each Calculation Period,
the percent per annum set forth in the table below in this SECTION 4.2
under the heading "Commitment Fee" opposite the Total Funded Debt to
Adjusted EBITDA Ratio calculated for the completed four (4) Fiscal
Quarters which immediately preceded the beginning of the applicable
Calculation Period.
(c) "LIBOR RATE MARGIN" shall mean (i) during the period
commencing on the Closing Date and ending on but not including the
first Adjustment Date (as defined below), one and three-quarters
percent (1.75%) per annum for Revolving Loans and two and one-quarter
percent (2.25%) per annum for Acquisition Loans, and (ii) during each
Calculation Period, the percent per annum set forth in the table below
in this SECTION 4.2 under the heading "LIBOR Rate Margin", under the
heading for the applicable Loan and opposite the Total Funded Debt to
Adjusted EBITDA Ratio calculated for the completed four (4) Fiscal
Quarters which immediately preceded the beginning of the applicable
Calculation Period.
The following is the table referred to in clauses (a), (b) and (c) of
this SECTION 4.2:
<TABLE>
<CAPTION>
---------------------------------------------------
BASE MARGIN LIBOR RATE MARGIN
-------------------------------------------------------------------------------------------------------
Total Funded Debt to Revolving Acquisition Revolving Acquisition Commitment
Adjusted EBITDA Ratio Loan Loan Loan Loan Fee
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
>3.0:1 1.25% 1.75% 2.50% 3.00% 0.500%
-------------------------------------------------------------------------------------------------------
< than or = 3.0:1 > 2.5:1 1.00% 1.50% 2.25% 2.75% 0.500%
-------------------------------------------------------------------------------------------------------
< than or = 2.5:1 > than or = 2.0:1 0.75% 1.25% 2.00% 2.50% 0.375%
-------------------------------------------------------------------------------------------------------
<2.0:1 0.50% 1.00% 1.75% 2.25% 0.375%
-------------------------------------------------------------------------------------------------------
</TABLE>
Upon delivery of the Compliance Certificate pursuant to SUBSECTION
9.1(c) hereof in connection with the financial statements of Borrower and the
Subsidiaries required to be delivered pursuant to SUBSECTION 9.1(b) hereof at
the end of each Fiscal Quarter commencing with such Compliance Certificate
delivered at the end of the Fiscal Quarter ending on or about March 31, 1996,
the Base Margin, the Libor Rate Margin (for Interest Periods commencing after
the applicable Adjustment Date, as defined below) and the Commitment Fee Rate
shall automatically be adjusted in accordance with the Total Funded Debt to
Adjusted EBITDA Ratio set forth therein and the tables set forth above, such
automatic adjustment to take effect as of the first Business Day after the
receipt by the Agent of the related Compliance Certificate pursuant to
SUBSECTION 9.1(c) hereof. The term "ADJUSTMENT DATE" shall mean each such
Business Day when such margins or fees change pursuant to the immediately prior
sentence or the next following sentence. If Borrower fails to deliver such
Compliance Certificate which so sets forth the Total Funded Debt to Adjusted
EBITDA Ratio within the period of time required by SUBSECTION 9.1(c) hereof:
(i) the Base Margin shall automatically be adjusted to one and one-quarter
percent (1.25%) per annum for Revolving Loans and one and three-quarters
percent (1.75%) for Acquisition Loans; (ii) the Libor Rate Margin (for Interest
Periods commencing after the applicable Adjustment Date) shall automatically be
adjusted to two and one-half percent
CREDIT AGREEMENT - Page 25
<PAGE> 32
(2.50%) per annum for Revolving Loans and three percent (3.00%) per annum for
Acquisition Loans; (iii) the Commitment Fee Rate shall automatically be
adjusted to one-half percent (.5%), such automatic adjustments to take effect
as of the first Business Day after the last day on which Borrower was required
to deliver the applicable Compliance Certificate in accordance with SUBSECTION
9.1(c) hereof and to remain in effect until subsequently adjusted in accordance
herewith upon the delivery of such Compliance Certificate.
Section 4.3 PAYMENT DATES. Accrued interest on the Loans shall
be due and payable as follows: (i) in the case of Loans subject to Base Rate
Accounts, on each Monthly Payment Date and on the Termination Date; (ii) in the
case of Loans subject to Libor Accounts and with respect to each such Account,
on (A) the last day of the Interest Period with respect thereto, (B) in the
case of an Interest Period greater than three months, at three-month intervals
after the first day of such Interest Period, and (C) on the Termination Date.
Section 4.4 DEFAULT INTEREST. Notwithstanding the foregoing, the
Borrower will pay to the Agent for the account of each Bank interest at the
applicable Default Rate on any principal of any Loan made by such Bank, any
Reimbursement Obligation, and (to the fullest extent permitted by law) any
other amount payable by the Borrower under any Loan Document to or for the
account of the Agent or such Bank, that is not paid in full when due (whether
at stated maturity, by acceleration, or otherwise), for the period from and
including the due date thereof to but excluding the date the same is paid in
full. Interest payable at the Default Rate shall be payable from time to time
on demand.
Section 4.5 CONVERSIONS AND CONTINUATIONS OF ACCOUNTS. Subject
to SECTION 5.2 hereof, the Borrower shall have the right from time to time to
Convert all or part of any Base Rate Account in existence under a Loan into a
Libor Account under the same Loan or to Continue Libor Accounts in existence
under a Loan as Libor Accounts under the same Loan, PROVIDED that: (a) the
Borrower shall give the Agent notice of each such Conversion or Continuation as
provided in SECTION 5.3 hereof; (b) a Libor Account may only be Converted on
the last day of the Interest Period therefore; (c) except for Conversions into
Base Rate Accounts, no Conversions or Continuations shall be made while a
Default has occurred and is continuing; and (d) a Libor Account established
under one Loan may not be Continued as a Libor Account under another Loan.
Section 4.6 COMPUTATIONS. Interest and fees payable by the
Borrower hereunder and under the other Loan Documents shall be computed on the
basis of a year of 360 days and the actual number of days elapsed (including
the first day but excluding the last day) in the period for which payable
unless in the case of interest such calculation would result in a usurious
rate, in which case interest shall be calculated on the basis of a year of 365
or 366 days, as the case may be.
ARTICLE 5
Administrative Matters
Section 5.1 BORROWING PROCEDURE. The Borrower shall give the
Agent, and the Agent will give the Banks, notice of each borrowing under any
Commitment in accordance with SECTION 5.3 hereof. Not later than 1:00 p.m. on
the date specified for each borrowing under the applicable Commitment each Bank
will make available the amount of the Loan to be made by it on such date to the
Agent, at the Principal Office, in immediately available funds, for the account
of the Borrower. The amounts received by the Agent shall, subject to the terms
and conditions of this Agreement, be made available to the Borrower at
Borrower's direction by transferring the same, in immediately available funds
by wire transfer, automated clearinghouse
CREDIT AGREEMENT - Page 26
<PAGE> 33
debit or interbank transfer, to (a) the Disbursement Account or (b) any of the
other bank accounts described on SCHEDULE 1.1(a) hereto or hereafter
established in accordance with the restrictions set forth in the Borrower
Security Agreement or the applicable Subsidiary Security Agreement or (c) a
Person or Persons designated by the Borrower in writing.
Section 5.2 MINIMUM AMOUNTS. Except for prepayments pursuant to
ARTICLE 6 hereof, each Base Rate Account applicable to a Loan and each
prepayment of principal of such Loan shall be in an amount at least equal to
the amount set forth below for the applicable Loan or any larger amounts in the
increments set forth below:
<TABLE>
<CAPTION>
-----------------------------------------------
Revolving Loan Acquisition Loans
-----------------------------------------------
<S> <C> <C>
$100,000 $500,000
-----------------------------------------------
Increments
-----------------------------------------------
$100,000 $500,000
-----------------------------------------------
</TABLE>
Except for Conversions pursuant to ARTICLE 6 hereof, each Libor Account
applicable to a Loan shall be in a minimum principal amount of One Million
Dollars ($1,000,000) or any larger amount in increments of Five Hundred
Thousand Dollars ($500,000).
Section 5.3 CERTAIN NOTICES. Notices by the Borrower to the
Agent of terminations or reductions of Commitments, of borrowings and
prepayments of Loans and of Conversion and Continuations of Accounts shall be
irrevocable and shall be effective only if received by the Agent not later than
(a) 1:00 p.m. on the Business Day of any repayment of Revolving Loans, (b)
11:00 a.m. on the Business Day of the requested borrowing under the Revolving
Loans subject to Base Rate Accounts, or (c) 1:00 p.m. on the Business Day prior
to the date of the relevant termination, reduction, borrowing, Conversion,
Continuation or other prepayment specified below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Notice Number of Business Days Prior
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
Termination or reduction of Commitments 3
- ------------------------------------------------------------------------------------------------------------------------
Borrowing of Acquisition Loans subject to Base Rate Accounts, prepayment
or repayment of Loans subject to Base Rate Accounts, or Conversions into 1
Base Rate Accounts
- ------------------------------------------------------------------------------------------------------------------------
Borrowing, prepayment or repayment of Loans subject to Libor Accounts, 3
Conversions into or Continuations as Libor Accounts
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Any notices of the type described in this SECTION 5.3 which are received by the
Agent after the applicable time set forth above on a Business Day shall be
deemed to be received and shall be effective on the next Business Day. Each
such notice of termination or reduction shall specify the applicable
Commitments to be affected and the amount of the Commitments to be terminated
or reduced. Each such notice of borrowing, Conversion, Continuation, or
prepayment shall specify (a) the Loans to be borrowed or prepaid or the
Accounts to be Converted or Continued; (b) the amount (subject to SECTION 5.2
hereof) to be borrowed, Converted, Continued or prepaid; (c) in the case of a
Conversion, the Type of Account to result from such Conversion; (d) in the case
of a borrowing, the Type of Account or Accounts to be applicable to such
borrowing and the amounts thereof; (e) in the event a Libor Account is
selected, the duration of the Interest Period therefor; (f) the date of
borrowing, Conversion, Continuation, or prepayment (which shall
CREDIT AGREEMENT - Page 27
<PAGE> 34
be a Business Day); (g) in the case of a borrowing under either Revolving
Acquisition Sublimit, a designation of the applicable sublimit under which such
borrowing is to be made and the intended use of the proceeds thereof; (h) in
the case of a borrowing under the Secondary Revolving Acquisition Sublimit, a
designation of whether such borrowing shall be an "Excess Cash Advance" or a
"PMC Proceed Advance" and a calculation of the amount of the Secondary
Revolving Acquisition Sublimit in the form of the Certificate attached hereto
as EXHIBIT L; and (i) in the case of a borrowing under the Acquisition
Commitments, the intended use of the proceeds thereof, whether to finance a
Permitted Acquisition or to refinance amounts advanced under the Primary
Revolving Acquisition Sublimit. The Agent shall notify the Banks of the
contents of each such notice on the date of its receipt of the same or, if
received on or after the applicable time set forth above on a Business Day, on
the next Business Day. In the event the Borrower fails to select the Type of
Account applicable to a Loan, or the duration of any Interest Period for any
Libor Account, within the time period and otherwise as provided in this SECTION
5.3, such Account (if outstanding as a Libor Account) will be automatically
Converted into a Base Rate Account on the last day of the preceding Interest
Period for such Account or (if outstanding as a Base Rate Account) will remain
as, or (if not then outstanding) will be made as, a Base Rate Account. The
Borrower may not borrow any Loans subject to a Libor Account, Convert any Base
Rate Accounts into Libor Accounts, or Continue any Libor Account as a Libor
Account if the Applicable Rate for such Libor Accounts would exceed the Maximum
Rate.
Section 5.4 PREPAYMENTS.
(a) MANDATORY.
(i) REVOLVING LOANS. If at any time the
Outstanding Revolving Credit exceeds the sum of the Borrowing
Base minus the Agency Account Reserve, the Borrower shall,
within one (1) Business Day after the occurrence thereof,
prepay the outstanding Revolving Loans by the amount of the
excess or if no Revolving Loans are outstanding and the
Outstanding Revolving Credit exceeds the sum of the Borrowing
Base minus the Agency Account Reserve, immediately pledge to
the Agent cash or cash equivalents in an amount equal to the
excess as security for the Obligations. The Revolving Loans
shall also be repaid with the net proceeds received from the
disposition of the stock or assets of PMC in accordance with
SECTION 10.8. Revolving Loans outstanding under the Primary
Revolving Acquisition Sublimit must be repaid in full on the
Business Day immediately preceding the Acquisition
Availability Termination Date. The funds deposited into the
Concentration Account (over which Borrower shall have no
control) or wire transferred to Agent from the Lockbox
Accounts shall, on the date received, be applied by the Agent
for the benefit of the Banks (A) if no Event of Default shall
have occurred and be continuing, first, as a payment of the
outstanding principal amount of the Revolving Loans, second,
as a payment of accrued and unpaid interest on the Revolving
Loans, and third, to the repayment of any other Obligations
which are due and outstanding in connection with the Revolving
Loans, and if after the foregoing applications, funds so
received remain available to be disbursed, the Agent shall
deposit such remaining amount of such funds to the Borrower's
Disbursement Account or transfer such funds as
CREDIT AGREEMENT - Page 28
<PAGE> 35
the Borrower shall otherwise direct, and (B) if a Default or an
Event of Default shall have occurred and be continuing, in
accordance with SECTION 5.5 hereof.
(ii) ACQUISITION LOANS. On or before April 30 of
each year, commencing April 30, 1997, Borrower shall deliver
to Agent a certificate from the chief executive officer or
chief financial officer of Borrower certifying to a
calculation of Excess Cash Flow for the immediately preceding
Fiscal Year and the amount to be prepaid under this SUBSECTION
5.4(a)(ii). On May 15 of each year commencing May 15, 1997,
the Borrower shall prepay the Acquisition Loans in an amount
equal to the sum of (A) seventy-five percent (75%) of Excess
Cash Flow for the immediately preceding Fiscal Year minus (B)
all optional prepayments of the Acquisition Loans made since
May 15 of the immediately preceding Fiscal Year to the date of
determination. Each prepayment under this SUBSECTION
5.4(a)(ii) shall be accompanied with accrued and unpaid
interest on the amount prepaid to the date of prepayment and
shall be applied to the installments of principal due under
the Acquisition Loans each in the inverse order of maturity,
with each such Acquisition Loan being prepaid by its pro rata
portion of the amount of the prepayment, with its pro rata
portion equal to a percentage obtained by multiplying by 100
the quotient derived by dividing the outstanding principal
amount of the Acquisition Loan in question by the aggregate
outstanding principal amount of the Acquisition Loans (as of
the date of prepayment calculated without giving effect to
such prepayment).
(b) OPTIONAL. Subject to SECTION 5.2 hereof and the
provisions of this clause (b), Borrower may, at any time and from time
to time without premium or penalty upon prior notice to the Agent as
specified in SECTION 5.3 hereof, prepay or repay any Loan in full or
in part. Any optional prepayment of the Acquisition Loans shall be
accompanied with accrued interest on the amount prepaid to the date of
prepayment and any partial prepayments thereof shall be applied to the
principal installments due under the Acquisition Loans each in the
inverse order of maturity, with each such Acquisition Loan being
prepaid by its pro rata portion of the amount of the prepayment, with
its pro rata portion determined in the same manner as set forth in
SECTION 5.4(a) (ii). Loans subject to a Libor Account may be prepaid
or repaid only on the last day of the Interest Period applicable
thereto unless (i) the Borrower pays to the Agent for the account of
the applicable Banks any amounts due under SECTION 6.5 hereof as a
result of such prepayment or repayment or (ii) after giving effect to
such prepayment or repayment the aggregate principal amount of the
Libor Accounts applicable to the Loan being prepaid or repaid having
Interest Periods that end after such payment date shall be equal to or
less than the principal amount of such Loan after such prepayment or
repayment.
Section 5.5 METHOD OF PAYMENT. Except as otherwise expressly
provided herein, all payments of principal, interest, and other amounts to be
made by the Borrower or any Obligated Party under the Loan Documents shall be
made to the Agent at the Principal Office for the account of each Bank's
Applicable Lending Office in Dollars and in immediately available funds,
without setoff, deduction, or counterclaim, not later than 1:00 p.m. on the
date on which such payment shall become due (each such payment made after
such time on such due date to be deemed to have been made on the next
succeeding Business Day). The Borrower and each
CREDIT AGREEMENT - Page 29
<PAGE> 36
Obligated Party shall, at the time of making each such payment, specify to the
Agent the sums payable under the Loan Documents to which such payment is to be
applied (and in the event that the Borrower fails to so specify, or if an Event
of Default has occurred and is continuing, the Agent may apply such payment and
any proceeds of any Collateral to the Obligations in such order and manner as
it may elect in its sole discretion, subject to SECTION 5.6 hereof). Each
payment received by the Agent under any Loan Document for the account of a Bank
shall be paid to such Bank by 3:00 p.m. on the date the payment is deemed made
to the Agent in immediately available funds, for the account of such Bank's
Applicable Lending Office. Whenever any payment under any Loan Document shall
be stated to be due on a day that is not a Business Day, such payment may be
made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of the payment of interest and
commitment fee, as the case may be.
Section 5.6 PRO RATA TREATMENT. Except to the extent otherwise
provided herein: (a) each Loan shall be made by the Banks, each payment of
commitment fees under SECTIONS 2.5 and 3.5 hereof and letter of credit fees
under SUBSECTION 2.7(c) hereof shall be made for the account of the Banks, and
each termination or reduction of the Commitments shall be applied to the
Commitments of the Banks, pro rata according to their respective Commitment
Percentages; (b) the making, Conversion, and Continuation of Accounts of a
particular Type (other than Conversions provided for by SECTION 6.4 hereof)
shall be made pro rata among the Banks holding Accounts of such Type according
to their respective Commitment Percentages; (c) each payment and prepayment of
principal of or interest on Loans or Reimbursement Obligations by the Borrower
shall be made to the Agent for the account of the Agent or the Banks holding
such Loans or Reimbursement Obligations (or participation interests therein)
pro rata in accordance with the respective unpaid principal amounts of such
Loans or participation interests held by the Agent or such Banks; (d) proceeds
of Collateral shall be shared by the Agent and the Banks pro rata in accordance
with the respective unpaid principal amounts of and interest on the Obligations
then due the Agent and the Banks; and (e) the Banks (other than the Agent)
shall purchase from the Agent participations in the Letters of Credit to the
extent of their respective Commitment Percentages. If at any time payment, in
whole or in part, of any amount distributed by the Agent hereunder is rescinded
or must otherwise be restored or returned by Agent as a preference, fraudulent
conveyance or otherwise under any bankruptcy, insolvency or similar law, then
each Person receiving any portion of such amount agrees, upon demand, to return
the portion of such amount it has received to the Agent.
Section 5.7 SHARING OF PAYMENTS. If a Bank shall obtain payment
of any principal of or interest on any of the Obligations due to such Bank
hereunder directly (and not through the Agent) through the exercise of any
right of set-off, banker's lien, counterclaim or similar right, or otherwise,
it shall promptly purchase from the other Banks participations in the
Obligations held by the other Banks in such amounts, and make such other
adjustments from time to time as shall be equitable to the end that all the
Banks shall share the benefit of such payment pro rata in accordance with the
unpaid principal of and interest on the Obligations then due to each of them.
To such end, all of the Banks shall make appropriate adjustments among
themselves (by the resale of participations sold or otherwise) if all or any
portion of such excess payment is thereafter rescinded or must otherwise be
restored. The Borrower agrees, to the fullest extent it may effectively do so
under applicable law, that any Bank so purchasing a participation in the
Obligations held by the other Banks may exercise all rights of set-off,
banker's lien,
CREDIT AGREEMENT - Page 30
<PAGE> 37
counterclaim, or similar rights with respect to such participation as fully as
if such Bank were a direct holder of Obligations in the amount of such
participation. Nothing contained herein shall require any Bank to exercise any
such right or shall affect the right of any Bank to exercise, and retain the
benefits of exercising, any such right with respect to any other indebtedness
or obligation of the Borrower.
Section 5.8 NON-RECEIPT OF FUNDS BY THE AGENT. Unless the Agent
shall have been notified by a Bank or the Borrower (the "PAYOR") prior to the
date on which such Bank is to make payment to the Agent hereunder or the
Borrower is to make a payment to the Agent for the account of one or more of
the Banks, as the case may be (such payment being herein called the "REQUIRED
PAYMENT"), which notice shall be effective upon receipt, that the Payor does
not intend to make the Required Payment to the Agent, the Agent may assume that
the Required Payment has been made and may, in reliance upon such assumption
(but shall not be required to), make the amount thereof available to the
intended recipient on such date and, if the Payor has not in fact made the
Required Payment to the Agent, (a) the recipient of such payment shall, on
demand, pay to the Agent the amount made available to it together with interest
thereon in respect of the period commencing on the date such amount was so made
available by the Agent until the date the Agent recovers such amount at a rate
per annum equal to the Federal Funds Rate for such period and (b) Agent shall
be entitled to offset against any and all sums to be paid to such recipient,
the amount calculated in accordance with the foregoing CLAUSE (a).
Section 5.9 WITHHOLDING TAXES. To the extent permitted by
applicable law, all payments by the Borrower of amounts payable under any Loan
Document shall be payable without deduction for or on account of any present or
future taxes, duties or other charges levied or imposed by the United States of
America or by the government of any jurisdiction outside the United States of
America or by any political subdivision or taxing authority of or in any of the
foregoing through withholding or deduction with respect to any such payments
(but excluding any tax imposed on or measured by the net income or profit of a
Bank pursuant to the laws of the jurisdiction in which it is organized or in
which the principal office or Applicable Lending Office of such Bank is located
or any subdivision thereof or therein). If any such taxes, duties or other
charges are so levied or imposed, the Borrower will make additional payments in
such amounts so that every net payment of amounts payable by it under any Loan
Document, after withholding or deduction for or on account of any such present
or future taxes, duties or other charges, will not be less than the amount
provided for herein or therein, provided that the Borrower may withhold to the
extent required by law and shall have no obligation to pay such additional
amounts to any Bank to the extent that such taxes, duties, or other charges are
levied or imposed by reason of the failure or inability of such Bank to comply
with the provisions of SECTION 5.10 hereof. The Borrower shall furnish
promptly to the Agent for distribution to each affected Bank, as the case may
be, official receipts evidencing any such withholding or reduction.
Section 5.10 WITHHOLDING TAX EXEMPTION. Each Bank that is not
incorporated under the laws of the United States of America or a state thereof
agrees that it will deliver to the Borrower and the Agent two duly completed
copies of United States Internal Revenue Service Form 1001 or 4224, certifying
in either case that such Bank is entitled to receive payments from the Borrower
under any Loan Document without deduction or withholding of any United States
federal income taxes. Each Bank which so delivers a Form 1001 or 4224 further
undertakes to
CREDIT AGREEMENT - Page 31
<PAGE> 38
deliver to Borrower and the Agent two (2) additional copies of such form (or a
successor form) on or before the date such form expires or becomes obsolete or
after the occurrence of any event requiring a change in the most recent form so
delivered by it, and such amendments thereto or extensions or renewals thereof
as may be reasonably requested by the Borrower or the Agent, in each case
certifying that such Bank is entitled to receive payments from the Borrower
under any Loan Document without deduction or withholding of any United States
federal income taxes, unless an event (including without limitation any change
in treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Bank from duly completing and delivering any such
form with respect to it and such Bank advises the Borrower and the Agent that
it is not capable of receiving such payments without any deduction or
withholding of United States federal income tax.
Section 5.11 PARTICIPATION OBLIGATIONS ABSOLUTE; FAILURE TO FUND
PARTICIPATION. The obligations of a Bank to fund its participation in the
Letters of Credit in accordance with the terms hereof shall be absolute,
unconditional and irrevocable and shall be performed strictly in accordance
with the terms of the Loan Documents under all circumstances whatsoever,
including without limitation, the following circumstances: (a) any lack of
validity of any Loan Document; (b) the occurrence of any Default; (c) the
existence of any claim, set-off, counterclaim, defenses or other rights which
such Bank, the Borrower, any Obligated Party, or any other Person may have; (d)
the occurrence of any event that has or could reasonably be expected to have a
Material Adverse Effect; (e) the failure of any condition to a Loan under
ARTICLE 7 hereof to be satisfied; (f) the fact that after giving effect to the
funding of the participation the Outstanding Revolving Credit may exceed the
sum of the Borrowing Base minus the Agency Account Reserve; or (g) any other
circumstance whatsoever, whether or not similar to any of the foregoing;
provided that, the obligations of a Bank to fund its participation in a Letter
of Credit may be subject to avoidance by a Bank if such Bank proves in a final
nonappealable judgment that it was damaged and that such damage arose directly
from the Agent's willful misconduct or gross negligence in determining whether
(i) the conditions set forth in ARTICLE 7 hereof to the issuance of the Letter
of Credit in question were satisfied at the time of such issuance or such Loan
or (ii) the documentation presented under the Letter of Credit in question
complied with the terms thereof. If a Bank fails to fund its participation in
a Letter of Credit as required hereby, such Bank shall, subject to the
foregoing proviso, remain obligated to pay to the Agent the amount it failed to
fund on demand together with interest thereon in respect of the period
commencing on the date such amount should have been funded until the date the
amount was actually funded to the Agent at a rate per amount equal to the
Federal Funds Rate for such period and the Agent shall be entitled to offset
against any and all sums to be paid to such Bank hereunder the amount due the
Agent under this sentence.
ARTICLE 6
YIELD PROTECTION AND ILLEGALITY
Section 6.1 ADDITIONAL COSTS.
(a) The Borrower shall pay directly to each Bank from
time to time such amounts as such Bank may reasonably determine to be
necessary to compensate it for any
CREDIT AGREEMENT - Page 32
<PAGE> 39
costs incurred by such Bank which such Bank determines are
attributable to its making or maintaining of any Loans subject to
Libor Accounts or Letters of Credit hereunder or its obligation to
make any of such Loans hereunder or issue or participate in any Letter
of Credit, or any reduction in any amount receivable by such Bank
hereunder in respect of any such Loans or Letters of Credit or such
obligation (such increases in costs and reductions in amounts
receivable being herein called "ADDITIONAL COSTS"), resulting from any
Regulatory Change which:
(i) changes the basis of taxation of any amounts
payable to such Bank under this Agreement or its Notes in
respect of any of such Loans (other than franchise taxes and
taxes imposed on the overall net income of such Bank or its
Applicable Lending Office for any of such Loans by the United
States of America or the jurisdiction in which such Bank has
its Principal Office or such Applicable Lending Office);
(ii) imposes or modifies any reserve, special
deposit, minimum capital, capital ratio, or similar
requirement relating to any extensions of credit or other
assets of, or any deposits with or other liabilities or
commitments of, such Bank (including any of such Loans or any
deposits referred to in the definition of "Libor Rate" in
SECTION 1.1 hereof); or
(iii) imposes any other condition affecting this
Agreement or the Notes or any of such extensions of credit or
liabilities or commitments.
Each Bank will notify the Borrower (with a copy to the Agent) of any
event occurring after the date of this Agreement which will entitle
such Bank to compensation pursuant to this SUBSECTION 6.1(a) as
promptly as practicable after it obtains knowledge thereof and
determines to request such compensation, and will designate a
different Applicable Lending Office for the Loans affected by such
event if such designation will avoid the need for, or reduce the
amount of, such compensation and will not, in the sole opinion of such
Bank, violate any law, rule, or regulation or be in any way
disadvantageous to such Bank. Each Bank will furnish the Borrower
with a certificate setting forth the basis and the amount of each
request of such Bank for compensation under this SUBSECTION 6.1(a).
If any Bank requests compensation from the Borrower under this
SUBSECTION 6.1(a), the Borrower may, by notice to such Bank (with a
copy to the Agent) suspend the obligation of such Bank to issue or
participate in Letters of Credit or to make Loans subject to Libor
Accounts or Continue Libor Accounts as Libor Accounts or Convert Base
Rate Accounts into Libor Accounts until the Regulatory Change giving
rise to such request ceases to be in effect (in which case the
provisions of SECTION 6.4 hereof shall be applicable with respect to
such Libor Accounts). A Bank may only request compensation under this
SUBSECTION 6.1(a) (i) for Additional Cost incurred at any time after
the date which is six (6) months prior to the date the Bank requests
such compensation and at any time after it has notified the Borrower
it will request compensation under this SUBSECTION 6.1(a) and (ii)
only if the Bank requests similar compensation from other borrowers of
such Bank who have agreed to provisions similar to this SECTION 6.1(a)
and whose borrowings or letters of credit are otherwise subject to
similar increases in costs or reductions in amounts received.
CREDIT AGREEMENT - Page 33
<PAGE> 40
(b) Without limiting the effect of the foregoing
provisions of this SECTION 6.1, in the event that, by reason of any
Regulatory Change, any Bank either (i) incurs Additional Costs based
on or measured by the excess above a specified level of the amount of
a category of deposits or other liabilities of such Bank which
includes deposits by reference to which the interest rate on the Loans
subject to Libor Accounts is determined as provided in this Agreement
or a category of extensions of credit or other assets of such Bank
which includes Loans subject to Libor Accounts or (ii) becomes subject
to restrictions on the amount of such a category of liabilities or
assets which it may hold, then, if such Bank so elects by notice to
the Borrower (with a copy to the Agent), the obligation of such Bank
to make Loans subject to Libor Accounts or Continue Libor Accounts as
Libor Accounts or Convert Base Rate Accounts into Libor Accounts
hereunder shall be suspended until the Regulatory Change giving rise
to such request ceases to be in effect (in which case the provisions
of SECTION 6.4 hereof shall be applicable).
(c) Determinations and allocations by any Bank for
purposes of this SECTION 6.1 of the effect of any Regulatory Change on
its costs of maintaining its obligation to make Loans or issue or
participate in Letters of Credit or of making or maintaining Loans or
issuing or participating in Letters of Credit or on amounts receivable
by it in respect of Loans or Letters of Credit, and of the additional
amounts required to compensate such Bank in respect of any Additional
Costs, shall, absent manifest error, constitute prima facie evidence
of the accuracy thereof, provided that such determinations and
allocations are made on a reasonable basis.
Section 6.2 LIMITATION ON LIBOR ACCOUNTS. Anything herein to the
contrary notwithstanding, if with respect to any Libor Accounts under a Loan
for any Interest Period therefor:
(a) The Agent determines (which determination shall be
conclusive) that quotations of interest rates for the relevant
deposits referred to in the definition of "Libor Rate" in SECTION 1.1
hereof are not being provided in the relative amounts or for the
relative maturities for purposes of determining the rate of interest
for the Loans subject to such Libor Accounts as provided in this
Agreement; or
(b) Required Banks determine (which determination shall
be conclusive) and notify the Agent that the relevant rates of
interest referred to in the definition of "Adjusted Libor Rate" in
SECTION 1.1 hereof on the basis of which the rate of interest for such
Loans for such Interest Period is to be determined do not accurately
reflect the cost to the Banks of making or maintaining such Loans for
such Interest Period; then the Agent shall give the Borrower prompt
notice thereof specifying the relevant Libor Account and the relevant
amounts or periods, and so long as such condition remains in effect,
the Banks shall be under no obligation to make additional Loans
subject to a Libor Account or to Convert Base Rate Accounts into Libor
Accounts and the Borrower shall, on the last day(s) of the then
current Interest Period (s) for the outstanding Libor Accounts, either
prepay the Loans subject to such Libor Accounts or Convert such Libor
Accounts into Base Rate Accounts in accordance with the terms of this
Agreement. Determinations made under this SECTION 6.2 shall be made
on a reasonable basis.
CREDIT AGREEMENT - Page 34
<PAGE> 41
Section 6.3 ILLEGALITY. Notwithstanding any other provision of
this Agreement, in the event that it becomes unlawful for any Bank or its
Applicable Lending Office to (a) honor its obligation to make Loans subject to a
Libor Account hereunder or (b) maintain Loans subject to a Libor Account
hereunder, then such Bank shall promptly notify the Borrower (with a copy to the
Agent) thereof and such Bank's obligation to make or maintain Loans subject to a
Libor Account and to Convert Base Rate Accounts into Libor Accounts hereunder
shall be suspended until such time as such Bank may again make and maintain
Loans subject to a Libor Account (in which case the provisions of SECTION 6.4
hereof shall be applicable).
Section 6.4 TREATMENT OF AFFECTED LOANS. If the Accounts
applicable to a Loan of any Bank (hereinafter called "AFFECTED ACCOUNTS") are
to be Converted pursuant to SECTION 6.1 or 6.3 hereof, the Bank's Affected
Accounts shall be automatically Converted into Base Rate Accounts on the last
day(s) of the then current Interest Period(s) (or, in the case of a Conversion
required by SUBSECTION 6.1(b) or SECTION 6.3 hereof, on such earlier date as
such Bank may specify to the Borrower with a copy to the Agent) and, unless and
until such Bank gives notice as provided below that the circumstances specified
in SECTION 6.1 or 6.3 hereof which gave rise to such Conversion no longer
exist: (a) to the extent that such Bank's Affected Accounts have been so
Converted, all payments and prepayments of principal which would otherwise be
applied to such Bank's Affected Accounts shall be applied instead to its Base
Rate Accounts; and (b) all Accounts which would otherwise be established or
Continued by such Bank as Libor Accounts shall be made as or Converted into
Base Rate Accounts and all Accounts of such Bank which would otherwise be
Converted into Libor Accounts shall be Converted instead into (or shall remain
as) Base Rate Accounts. If such Bank gives notice to the Borrower (with a copy
to the Agent) that the circumstances specified in SECTION 6.1 or 6.3 hereof
which gave rise to the Conversion of such Bank's Affected Accounts pursuant to
this SECTION 6.4 no longer exist (which such Bank agrees to do promptly upon
such circumstances ceasing to exist) at a time when Libor Accounts are
outstanding, such Bank's Base Rate Accounts shall be automatically Converted,
on the first day(s) of the next succeeding Interest Period(s) for such
outstanding Libor Accounts to the extent necessary so that, after giving effect
thereto, all Accounts held by the Banks holding Libor Accounts and by such Bank
are held pro rata (as to principal amounts, Types, and Interest Periods) in
accordance with their respective Commitment Percentages.
Section 6.5 COMPENSATION. The Borrower shall pay to the Agent
for the account of each Bank, upon the request of such Bank, such amount or
amounts as shall be sufficient (in the reasonable opinion of such Bank) to
compensate it for any loss, cost, or expense incurred by it as a result of:
(a) Any payment or prepayment of a Loan subject to a
Libor Account or Conversion of a Libor Account for any reason
(including, without limitation, the acceleration of the outstanding
Loans pursuant to SUBSECTION 12.2(a)hereof) on a date other than the
last day of an Interest Period for the applicable Libor Account; or
(b) Any failure by the Borrower for any reason
(including, without limitation, the failure of any conditions
precedent specified in ARTICLE 7 to be satisfied) to borrow or prepay
a Loan subject to a Libor Account, or Convert a Base Rate Account to a
Libor Account on the date for such borrowing, Conversion, or
prepayment specified in the relevant notice of borrowing, prepayment,
or Conversion under this Agreement.
CREDIT AGREEMENT - Page 35
<PAGE> 42
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
which otherwise would have accrued on the principal amount so paid or Converted
or not borrowed for the period from the date of such payment, Conversion, or
failure to borrow to the last day of the Interest Period for such Libor Account
(or, in the case of a failure to borrow, the Interest Period for such Libor
Account which would have commenced on the date specified for such borrowing) at
the applicable rate of interest for such Libor Account provided for herein over
(ii) the interest component of the amount such Bank would have bid in the
London interbank market for Dollar deposits of leading banks and amounts
comparable to such principal amount and with maturities comparable to such
period.
Section 6.6 CAPITAL ADEQUACY. If after the date hereof, any Bank
shall have determined that any Regulatory Change or any change in the
compliance by such Bank (or its parent) with any guideline, request, or
directive regarding capital adequacy (whether or not having the force of law)
of any central bank or other Governmental Authority has or would have the
effect of reducing the rate of return on such Bank's (or its parent's) capital
as a consequence of its obligations hereunder or the transactions contemplated
hereby to a level below that which such Bank (or its parent) could have
achieved but for such Regulatory Change or change in compliance by an amount
deemed by such Bank to be material, then from time to time, within ten (10)
Business Days after demand by such Bank (with a copy to the Agent), the
Borrower shall pay to such Bank such additional amount or amounts as will
compensate such Bank (or its parent) for such reduction. A certificate of such
Bank claiming compensation under this Section and setting forth the additional
amount or amounts to be paid to it hereunder shall constitute prima facie
evidence of the accuracy thereof, provided that the determination thereof is
made on a reasonable basis. In determining such amount or amounts, such Bank
may use any reasonable averaging and attribution methods. With respect to each
demand by a Bank under this Section 6.6, no Bank shall have the right to demand
compensation for amounts attributable to any reduction in such Bank's rate of
return (i) occurring at any time before the date which is six (6) months prior
to the date the Bank gives such demand for compensation to Borrower and (ii)
unless the Bank requests similar compensation from other borrowers of such Bank
who have agreed to provisions similar to this Section 6.6 and whose borrowings
are otherwise subject to similar reductions in rates of return.
ARTICLE 7
Conditions Precedent
Section 7.1 INITIAL LOAN AND LETTER OF CREDIT. The obligation of
each Bank to make its initial Loan and the obligation of the Agent to issue the
initial Letter of Credit are subject to the condition precedent that the Agent
shall have received on or before February 1, 1996 and on or before the day of
any such Loan or Letter of Credit all of the following, each dated (unless
otherwise indicated) the date hereof, in form and substance satisfactory to the
Agent:
(a) RESOLUTIONS; AUTHORITY. Resolutions of the Board of
Directors of the Borrower and each Obligated Party (other than the
Shareholders) and the General Partner certified by its Secretary or an
Assistant Secretary which authorize its execution,
CREDIT AGREEMENT - Page 36
<PAGE> 43
delivery, and performance of the Loan Documents to which it (or in the
case of the General Partner, to which Arimathea) is or is to be a
party.
(b) INCUMBENCY CERTIFICATE. A certificate of incumbency
certified by the Secretary or an Assistant Secretary of the Borrower
and each Obligated Party (other than the individual Shareholders) and
the General Partner certifying the names of its officers (i) who are
authorized to sign the Loan Documents to which it (or in the case of
the General Partner, to which Arimathea) is or is to be a party
(including the certificates contemplated herein) together with
specimen signatures of each such officer and (ii) who will, until
replaced by other officers duly authorized for that purpose, act as
its representative for the purposes of signing documentation and
giving notices and other communications in connection with this
Agreement and the transactions contemplated hereby.
(c) ORGANIZATIONAL DOCUMENTS. The articles of
incorporation of the Borrower, each Obligated Party (other than the
Shareholders) and the General Partner certified by the Secretary of
State of the state of its incorporation and dated a current date. The
certificate of limited partnership of Arimathea certified by the
Secretary of State of the state of its organization and dated a
current date. A copy of the agreement of limited partnership of
Arimathea certified by the General Partner.
(d) BYLAWS. The bylaws of the Borrower, each Obligated
Party (other than the Shareholders) and the General Partner certified
by its Secretary or an Assistant Secretary.
(e) GOVERNMENTAL CERTIFICATES. Certificates of the
appropriate government officials of the state of incorporation of the
Borrower, each Obligated Party (other than the individual
Shareholders) and the General Partner as to its existence and, to the
extent applicable, good standing and certificates of the appropriate
government officials of each state in which the Borrower and each
Granting Subsidiary is required to qualify to do business and where
failure to so qualify could reasonably be expected to have a Material
Adverse Effect, as to the Borrower's qualification to do business and
good standing in such state, all dated a current date.
(f) NOTES. The Notes executed by the Borrower.
(g) GUARANTIES. A Guaranty executed by APS and PMC.
(h) COLLATERAL DOCUMENTS AND COLLATERAL. The Borrower
Security Agreement and the Borrower Pledge Agreement executed by the
Borrower, the Subsidiary Security Agreements executed by APS and PMC,
and the Shareholder Pledge Agreements executed by the Shareholders;
certificates representing the capital stock of the Subsidiaries, other
than Insignificant Subsidiaries, pledged pursuant to the Borrower
Pledge Agreement together with undated stock powers duly executed in
blank; certificates representing the capital stock of the Borrower
pledged pursuant to the Shareholder Pledge Agreements together with
undated stock shares duly executed in blank; UCC, tax and judgment
Lien search reports listing all documentation on file against the
Borrower, the
CREDIT AGREEMENT - Page 37
<PAGE> 44
Granting Subsidiaries, and the Shareholders in each jurisdiction in
which the Borrower, any such Obligated Party or any Collateral is
located or registered; and executed documentation as the Agent may
deem necessary to perfect or protect its Liens, including, without
limitation (but subject to SECTION 9.10): (i) intellectual property
assignments; (ii) financing statements under the UCC and other
applicable documentation under the laws of any jurisdiction with
respect to the perfection of Liens; and (iii) waivers, subordinations
or acknowledgements from all third parties who have possession or
control of any Collateral.
(i) TERMINATION OF LIENS. Duly executed UCC-3
termination statements, mortgage releases and such other documentation
as shall be necessary to terminate or release all Liens other than
those permitted by SECTION 10.2 hereof.
(j) INSURANCE POLICIES. Certificates of insurance
summarizing the insurance policies of Borrower and the Subsidiaries
required by this Agreement and reflecting the Agent as additional
insured under such policies and as loss payee with respect to all
policies covering Collateral.
(k) OPINION OF COUNSEL. A favorable opinion of legal
counsel to the Borrower and the Subsidiaries, as to such matters as
the Agent may reasonably request.
(l) BANK FEES. The arrangement and facility fees
Borrower has agreed to pay to The First National Bank of Boston under
the terms of that certain letter agreement dated November 15, 1995,
from The First National Bank of Boston to Borrower (less the credit
against such fees provided for therein).
(m) TOTAL FUNDED DEBT TO ADJUSTED EBITDA. Evidence that
the Total Funded Debt to Adjusted EBITDA Ratio for the Fiscal Quarter
ended September 30, 1995 is less than or equal to 2.0 to 1.
(n) BORROWING BASE REPORT. An initial Borrowing Base
report in the form of EXHIBIT "C" hereto together with the receivable
aging report required thereby.
(o) ATTORNEYS' FEES AND EXPENSES. Evidence that the
costs and expenses (including attorneys' fees) referred to in SECTION
14.1 hereof, to the extent incurred, shall have been paid in full by
the Borrower.
(p) ACCOUNT AGREEMENT. Agreements from each institution
where the Borrower or the Subsidiaries maintain a Lockbox Account in
form and substance satisfactory to the Agent, pursuant to which such
institutions recognize the Agent's Lien in such Lockbox Account and
agree to transfer the collected balances therein to the Concentration
Account on a daily basis.
(q) LOCKBOX AGREEMENTS. The Lockbox Agreements described
on SCHEDULE 1.1(a) hereto.
CREDIT AGREEMENT - Page 38
<PAGE> 45
Section 7.2 LOANS FOR ACQUISITIONS. The obligation of each Bank
to make any Acquisition Loan (including the initial Acquisition Loan) or any
Revolving Loans under either Revolving Acquisition Sublimit, is subject to the
following additional conditions precedent:
(a) ACQUISITION REQUEST. Borrower shall have provided to
the Agent and each Bank at least seven (7) Business Days prior to the
date that the proposed Acquisition Loan is to be requested (i) the
name of the Person (the "Target") who is to be acquired or whose
assets are to be acquired; (ii) a description of the nature of the
Target's business; (iii) copies of the documentation (or substantially
final drafts of the documentation) intended to effect the proposed
acquisition (the "Purchase Agreements"); (iv) a summary of the terms
and conditions of the proposed acquisition; (v) a certificate of the
chief financial officer or chief executive officer of the Borrower
certifying that no Default exists or could reasonably be expected to
occur as a result of the proposed acquisition; and (vi) any other
information the Agent may reasonably request.
(b) APPROVAL OF BANKS. If the Purchase Price for the
proposed acquisition is greater than Three Million Dollars
($3,000,000) but equal to or less than Four Million Dollars
($4,000,000), the Borrower shall have obtained the prior written
consent of the Required Banks to such acquisition and if the Purchase
Price for the proposed acquisition exceeds Four Million Dollars
($4,000,000), the Borrower shall have obtained the prior written
consent of all of the Banks. With respect to any acquisition
requiring the approval of any Bank, if the Borrower shall have
complied with its obligations under SECTION 7.2(a) and a Bank shall
have failed to approve or object to such acquisition within seven (7)
Business Days after delivery by Borrower of the information required
by SECTION 7.2(a), such Bank shall be deemed to have approved such
acquisition for purposes of this SECTION 7.2(b).
(c) ACQUISITION CRITERIA. Borrower shall provide to the
Agent and each Bank evidence that:
(i) Borrower has completed due diligence on the
Target and the assets to be acquired satisfactory to Agent,
including, without limitation, if applicable, a due diligence
investigation as to the compliance with all Environmental Laws
by the Target and the assets to be acquired;
(ii) The Target is involved in the same general
type of business activities as the Borrower and the
Subsidiaries;
(iii) If the proposed acquisition is an acquisition
of the stock of a Target, the acquisition will be structured
so that the Target will become a wholly-owned subsidiary of
the Borrower and will be a Granting Subsidiary hereunder. If
the proposed acquisition is an acquisition of assets, the
acquisition will be the acquisition of all or substantially
all of (A) the assets of the Target or (B) the assets of a
division or branch of the Target. Each asset acquisition will
be structured so that either Borrower or a Granting Subsidiary
shall acquire the assets;
CREDIT AGREEMENT - Page 39
<PAGE> 46
(iv) Neither the Target nor its assets shall be
subject to any contingent obligations (including contingent
obligations arising from any Environmental Liabilities),
Environmental Liabilities, unsatisfied judgments or any
pending action, charge, claim, demand, suit, proceeding,
petition, governmental investigation or arbitration that could
reasonably be expected to have a Material Adverse Effect;
(v) The following criteria are satisfied:
(A) Borrower shall have provided to the
Agent and each Bank (i) copies of the financial
statements of the Target for the twelve (12) month
period prior to the closing of the proposed
acquisition for which financial statements are
available (but in any event financial statements for
the most recently completed fiscal year of such
Target) containing at a minimum, a statement of
income and statement of cash flow prepared in
accordance with GAAP and (ii) a pro forma financial
projection of the Borrower and its Subsidiaries
(including the Target) for the period following the
date of the consummation of the proposed acquisition
to the Termination Date which reflects compliance
with the financial covenants in this Agreement;
(B) The cash portion of the Purchase
Price to be paid by the Borrower to acquire the
Target or its assets does not exceed an amount equal
to the product obtained by (1) multiplying by five
and one-half (5.5) the EBITDA of the Target or, as
applicable, the EBITDA of the Target attributable to
such assets acquired, for the most recently completed
twelve (12) month period prior to the closing of the
proposed acquisition for which financial statements
are available or (2) multiplying by seven (7) the
Adjusted EBIT (as defined below) of the Target or, as
applicable, the Adjusted EBIT of the Target
attributable to the assets acquired, for the most
recently completed twelve (12) month period prior to
the closing of the proposed acquisition for which
financial statements are available. (The criterion
set forth in this clause (B) will be deemed satisfied
if the requirement set forth in either clause (1) or
(2) above in this clause (B) is satisfied; i.e., it
is not necessary that the requirements set forth in
both clauses (1) and (2) of this clause (B) be
satisfied with respect to any one acquisition.) The
term "ADJUSTED EBIT" means, for any period, the sum
of the following, each calculated without duplication
for the Target for such period: (1) Net Income; plus
(2) all of those verifiable non-recurring expenses
which have been deducted in calculating Net Income
for such period and which will be eliminated in the
future upon the consummation of the proposed
acquisition by the Borrower; plus (3) any provision
for (or less any benefit from) income or franchise
taxes deducted in determining Net Income; plus (4)
the sum of interest expenses deducted in determining
Net Income minus interest income; minus (5) all
income or gains which have been added in calculating
Net Income for such period and which will
CREDIT AGREEMENT - Page 40
<PAGE> 47
be eliminated in the future upon the consummation of
the proposed acquisition by the Borrower;
(C) For the period from the Closing Date
to and including January 31, 1997 and the period from
February 1, 1997 to and including January 31, 1998,
the sum of the amount borrowed under this Agreement
to pay the Purchase Price for the Target or its
assets in connection with the acquisition in question
plus the aggregate amount borrowed under this
Agreement to pay the Purchase Prices for all Prior
Targets or their assets purchased since the first day
of the applicable period does not exceed the sum of
(a) Twelve Million Five Hundred Thousand Dollars
($12,500,000) plus (b) the Secondary Revolving
Acquisition Sublimit in effect at the time of
determination (in calculating the amount borrowed for
purposes of the foregoing, Revolving Loans made under
the Primary Revolving Acquisition Sublimit and then
refinanced under the Acquisition Commitment shall not
be aggregated but shall be treated as one borrowing
as between the Revolving Loans and the Acquisition
Loans);
(D) The quotient obtained by dividing
(i) the sum of the Borrower's Senior Debt as of the
date of the proposed acquisition plus the amounts to
be borrowed under the Acquisition Commitments and
Revolving Commitments in connection with the
acquisition in question by (ii) the Borrower's
Adjusted EBITDA plus, on a pro forma basis, the
Target's EBITDA or, if applicable, the EBITDA of the
Target attributable to the assets acquired, both for
the most recently completed twelve (12) month period
prior to the date of determination for which
financial statements are available, shall not exceed
two and three-quarters (2.75);
(E) The quotient obtained by dividing
(i) the sum of the Borrower's Debt as of the date of
the proposed acquisition plus the amounts to be
borrowed under the Acquisition Commitments and
Revolving Commitments in connection with the
acquisition in question by (ii) the Borrower's
Adjusted EBITDA plus, on a pro forma basis, the
Target's EBITDA or, if applicable, the EBITDA of the
Target attributable to the assets acquired, both for
the most recently completed twelve (12) month period
prior to the date of determination for which
financial statements are available, shall not exceed
three and one-quarter (3.25); and
(F) Accompanying the certificate
required by SUBSECTION 7.2(a)(v) hereof,
calculations demonstrating compliance with this
CLAUSE (v) of this SUBSECTION 7.2(c); and
(vi) Any Debt incurred in connection with the
proposed acquisition owed to third parties must be provided on
terms that are acceptable to the Agent and the Required Banks
and must otherwise be incurred payable to the order of the
seller in such acquisition and subordinate to the Obligations
on substantially
CREDIT AGREEMENT - Page 41
<PAGE> 48
the same terms as are set forth on the sample subordination
agreement attached as EXHIBIT "M" hereto or such other terms as
the Agent may approve.
(d) PURCHASE AGREEMENTS. Prior to the closing of the
proposed acquisition, (i) Agent shall have received executed copies of
the Purchase Agreement relating to the proposed acquisition; (ii) the
Purchase Agreement shall be in full force and effect and no material
term or condition thereof shall have been amended, modified, or waived
after the execution thereof (other than solely to extend the date by
which the proposed acquisition is required to occur) except those for
which prior written notice was provided to Agent; (iii) none of the
parties to the Purchase Agreement shall have failed to perform any
material obligation or covenant required by the Purchase Agreement to
be performed or complied with by it on or before the date of the
closing of the proposed acquisition; and (iv) Agent shall have
received a certificate from Borrower's chief executive officer or
chief financial officer to the effect set forth in CLAUSES (i), (ii)
and (iii) above; provided that, such certification shall be to the
best of the Borrower's knowledge with respect to clause (iii) and the
performance by parties other than the Borrower or an Affiliate of the
Borrower of the Purchase Agreement.
(e) PROPOSED ACQUIREE LOAN DOCUMENTS. If the proposed
acquisition is an acquisition of the stock of a Target, then (i) the
Target shall execute and deliver to Agent a Guaranty, a Subsidiary
Security Agreement and such documentation requested by Agent to cause
the Liens granted thereby to be perfected and to have priority over
all other Liens other than those permitted by SECTION 10.2 hereto,
(ii) the Borrower shall execute and deliver to the Agent an amendment
to the Borrower Pledge Agreement describing as collateral thereunder
the stock of the Target, and (iii) the Borrower shall deliver to the
Agent the certificates representing the stock of the Target together
with undated stock powers duly executed in blank. If the proposed
acquisition is an acquisition of assets, the Borrower or Granting
Subsidiary acquiring the assets shall execute and deliver to Agent
such documentation requested by Agent to cause the property acquired
to be subject to a perfected Lien in favor of Agent for the benefit of
the Banks and for such Lien to have priority over all other Liens
other than those permitted by SECTION 10.2 hereto.
Section 7.3 ALL LOANS AND LETTERS OF CREDIT. The obligation of
each Bank to make any Loan (including the initial Loan) and the obligation of
the Agent to issue any Letter of Credit (including the initial Letter of
Credit) are subject to the following additional conditions precedent:
(a) NO DEFAULT. No Default shall have occurred and be
continuing, or would result from such Loan or Letter of Credit;
(b) REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties contained in Article 8 hereof and in
the other Loan Documents shall be true and correct on and as of the
date of such Loan or Letter of Credit with the same force and effect
as if such representations and warranties had been made on and as of
such date except to the extent that such representations and
warranties relate specifically to another date; and
CREDIT AGREEMENT - Page 42
<PAGE> 49
(c) ADDITIONAL DOCUMENTATION. The Agent shall have
received such additional approvals, opinions, or documents as the
Agent may reasonably request.
Each notice of borrowing by the Borrower hereunder, and each request for the
issuance of a Letter of Credit, shall constitute a representation and warranty
by the Borrower that the conditions precedent set forth in SUBSECTIONS 7.3(a)
and (b) hereof have been satisfied (both as of the date of such notice and,
unless the Borrower otherwise notifies the Agent prior to the date of such
borrowing or Letter of Credit, as of the date of such borrowing or Letter of
Credit).
ARTICLE 8
REPRESENTATIONS AND WARRANTIES
To induce the Agent and the Banks to enter into this Agreement, the
Borrower represents and warrants to the Agent and the Banks that:
Section 8.1 CORPORATE EXISTENCE. The Borrower, each Subsidiary
and the General Partner (a) is a corporation duly organized, validly existing,
and in good standing under the laws of the jurisdiction of its incorporation;
(b) has all requisite power and authority to own its assets and carry on its
business as now being or as proposed to be conducted; and (c) is qualified to
do business in all jurisdictions in which the nature of its business makes such
qualification necessary and where failure to so qualify would have a Material
Adverse Effect. Borrower, each Obligated Party and the General Partner has the
power and authority to execute, deliver, and perform their respective
obligations under the Loan Documents to which it (or in the case of the General
Partner, Arimathea) is or may become a party.
Section 8.2 FINANCIAL STATEMENTS. The Borrower has delivered to
the Agent and the Banks (i) audited consolidated financial statements of the
Borrower and its Subsidiaries for the Fiscal Year ended May 31, 1994 and the
seven (7) month interim period ended December 31, 1994 and (ii) unaudited
consolidated financial statements of the Borrower and its Subsidiaries for the
eleven (11) month period ended November 30, 1995. Such financial statements
have been prepared in accordance with GAAP (subject in the case of the
unaudited financial statements to audit adjustments and the fact that such
financial statements do not contain footnotes), and present fairly, on a
consolidated basis, the financial condition of the Borrower and the
Subsidiaries as of the respective dates indicated therein and the results of
operations for the respective periods indicated therein. Neither the Borrower
nor any of the Subsidiaries has any material contingent liabilities,
liabilities for taxes, unusual forward or long-term commitments, or unrealized
or anticipated losses from any unfavorable commitments except as referred to or
reflected in such financial statements. There has been no Material Adverse
Effect since the effective date of the most recent financial statements
delivered to Agent.
Section 8.3 CORPORATE ACTION; NO BREACH. The execution,
delivery, and performance by the Borrower and each Obligated Party of the Loan
Documents to which each is or may become a party and compliance with the terms
and provisions hereof and thereof have been duly authorized by all requisite
action on the part of the Borrower and each Obligated Party and do not and will
not (a) violate or conflict with, or result in a breach of, or require any
consent under (i) the articles of incorporation, bylaws or partnership
agreement of the Borrower, any of
CREDIT AGREEMENT - Page 43
<PAGE> 50
the Subsidiaries, the General Partner or any other Obligated Party, (ii) any
applicable law, rule, or regulation or any order, writ, injunction, or decree
of any Governmental Authority or arbitrator other than such violations,
conflicts and breaches which do not have a Material Adverse Effect, or (iii)
any agreement or instrument to which the Borrower, any of the Subsidiaries, the
General Partner or any other Obligated Party is a party or by which any of them
or any of their property is bound or subject other than such violations,
conflicts and breaches which do not have a Material Adverse Effect, or (b)
constitute a default under any such agreement or instrument, or result in the
creation or imposition of any Lien (except as provided herein or Liens in favor
of Agent) upon any of the revenues or assets of the Borrower, any Subsidiary,
the General Partner or any other Obligated Party other than such defaults which
do not have a Material Adverse Effect.
Section 8.4 OPERATION OF BUSINESS. The Borrower and each of the
Subsidiaries possess all licenses, permits, franchises, patents, copyrights,
trademarks, and tradenames, or rights thereto, necessary to conduct their
respective businesses substantially as now conducted and as presently proposed
to be conducted except those that the failure to so possess could not
reasonably be expected to have a Material Adverse Effect, and the Borrower and
each of its Subsidiaries are not in violation of any valid rights of others
with respect to any of the foregoing except violations that could not
reasonably be expected to have a Material Adverse Effect.
Section 8.5 LITIGATION AND JUDGMENTS. Except as disclosed on
SCHEDULE 8.5 hereto, there is no action, suit, investigation, or proceeding
before or by any Governmental Authority or arbitrator pending, or to the
knowledge of the Borrower, threatened against or affecting the Borrower or any
Subsidiary, that would, if adversely determined, have a Material Adverse
Effect. There are no outstanding judgments against the Borrower or any
Subsidiary.
Section 8.6 RIGHTS IN PROPERTIES; LIENS. The Borrower and each
Subsidiary have good title to or valid leasehold interests in their respective
properties and assets, real and personal, including the properties, assets, and
leasehold interests reflected in the financial statements described in SECTION
8.2 hereto, and none of the properties, assets, or leasehold interests of the
Borrower or any Subsidiary is subject to any Lien, except as permitted by
SECTION 10.2 hereto.
Section 8.7 ENFORCEABILITY. The Loan Documents to which the
Borrower or any Obligated Party is party, when delivered, shall constitute the
legal, valid, and binding obligations of the Borrower or the Obligated Party,
as applicable, enforceable against Borrower or the applicable Obligated Party
in accordance with their respective terms, except as limited by bankruptcy,
insolvency, or other laws of general application relating to the enforcement of
creditors' rights and general principles of equity.
Section 8.8 APPROVALS. No authorization, approval, or consent
of, and no filing or registration with, any Governmental Authority or third
party is or will be necessary for the execution, delivery, or performance by
the Borrower or any Obligated Party of the Loan Documents to which each is or
may become a party or for the validity or enforceability thereof except for
such authorizations, approvals, consents, filings and registrations the failure
to obtain or make will not have a Material Adverse Effect and except for
notices required to be delivered to Franchisees of the collateral assignment to
Agent of their franchise agreements.
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Section 8.9 DEBT. The Borrower and the Subsidiaries have no
Debt, except as permitted by Section 10.1 hereto.
Section 8.10 TAXES. The Borrower and each Subsidiary have filed
all material tax returns (federal, state, and local) required to be filed,
including all income, franchise, employment, property, and sales tax returns,
and have paid all of their respective liabilities for taxes, assessments,
governmental charges, and other levies that are due and payable other than
those being contested in good faith by appropriate proceedings diligently
pursued for which adequate reserves have been established. Except as disclosed
in writing to Agent, the Borrower knows of no pending investigation of the
Borrower or any Subsidiary by any taxing authority or of any pending but
unassessed tax liability of the Borrower or any Subsidiary.
Section 8.11 MARGIN SECURITIES. Neither the Borrower nor any
Subsidiary is engaged principally, or as one of its important activities, in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulations G, T, U, or X of the Board of
Governors of the Federal Reserve System), and no part of the proceeds of any
Loan will be used to purchase or carry any margin stock or to extend credit to
others for the purpose of purchasing or carrying margin stock.
Section 8.12 ERISA. The Borrower and each Subsidiary are in
compliance with all applicable provisions of ERISA except for such events of
noncompliance that will not have a Material Adverse Effect. Neither a
Reportable Event nor a Prohibited Transaction has occurred and is continuing
with respect to any Plan. No notice of intent to terminate a Plan has been
filed, nor has any Plan been terminated. No circumstances exist which
constitute grounds entitling the PBGC to institute proceedings to terminate, or
appoint a trustee to administer, a Plan, nor has the PBGC instituted any such
proceedings. Neither the Borrower nor any ERISA Affiliate has completely or
partially withdrawn from a Multiemployer Plan. The Borrower and each ERISA
Affiliate have met their minimum funding requirements under ERISA with respect
to all of their Plans except for those instances of noncompliance with such
requirements that will not have a Material Adverse Effect. The present value
of all vested benefits under each Plan do not exceed the fair market value of
all Plan assets allocable to such benefits, as determined on the most recent
valuation date of the Plan and in accordance with ERISA, by an amount that will
have a Material Adverse Effect. Neither the Borrower nor any ERISA Affiliate
has incurred any liability to the PBGC under ERISA in an amount that will have
a Material Adverse Effect.
Section 8.13 DISCLOSURE. All factual information furnished by or
on behalf of the Borrower in writing to the Agent or any Bank (including,
without limitation, all information contained in the Loan Documents) for
purposes of or in connection with this Agreement, the other Loan Documents or
any transaction contemplated herein or therein is, and all other such factual
information hereafter furnished by or on behalf of the Borrower to the Agent or
any Bank, will be true and accurate in all material respects on the date as of
which such information is dated or certified and not incomplete by omitting to
state any fact necessary to make such information not misleading in any
material respect at such time in light of the circumstances under which such
information was provided.
CREDIT AGREEMENT - Page 45
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Section 8.14 SUBSIDIARIES; BORROWER CAPITALIZATION. As of the
Closing Date, the Borrower has no Subsidiaries other than those listed on
SCHEDULE 8.14 hereto. As of the Closing Date, Schedule 8.14 sets forth the
jurisdiction of incorporation or organization of each such Subsidiary, the
percentage of the Borrower's ownership of the outstanding voting stock (or
other ownership interests) of each such Subsidiary and the authorized, issued
and outstanding capital stock of each Subsidiary. As of the Closing Date, the
Borrower has authorized 3,000,000 shares of common stock, 967,114 shares of
which are issued and outstanding and 216,406 shares of which are held in
treasury. All of the outstanding capital stock of the Borrower and each
Subsidiary has been validly issued, is fully paid, and is nonassessable.
Except as permitted to be issued or created pursuant to the terms hereof, there
are no outstanding subscriptions, options, warrants, calls, or rights
(including preemptive rights) to acquire, and no outstanding securities or
instruments convertible into, capital stock of the Borrower or any Subsidiary.
Each Subsidiary listed in items 3 through 6 on SCHEDULE 8.14 is an
Insignificant Subsidiary. There are no shareholder agreements, voting trusts
or similar agreements in effect and binding on any Shareholder or the capital
stock of Borrower pledged under the Shareholder Pledge Agreements which govern
or otherwise restrict the right to vote such capital stock.
Section 8.15 AGREEMENTS. Neither the Borrower nor any Subsidiary
is a party to any indenture, loan, or credit agreement, or to any lease or
other agreement or instrument, or subject to any charter or corporate
restriction that could reasonably be expected to have a Material Adverse
Effect. Neither the Borrower nor any Subsidiary is in default in any respect
in the performance, observance, or fulfillment of any of the obligations,
covenants, or conditions contained in any agreement or instrument to which it
is a party other than defaults which will not have a Material Adverse Effect.
Section 8.16 COMPLIANCE WITH LAWS. Neither the Borrower nor any
Subsidiary is in violation of any law, rule, regulation, order, or decree of
any Governmental Authority or arbitrator other than defaults which will not
have a Material Adverse Effect.
Section 8.17 INVESTMENT COMPANY ACT. Neither the Borrower nor any
Subsidiary is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
Section 8.18 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the
Borrower nor any Subsidiary is a "holding company" or a "subsidiary company" of
a "holding company" or an "affiliate" of a "holding company" or a "public
utility" within the meaning of the Public Utility Holding Company Act of 1935,
as amended.
Section 8.19 ENVIRONMENTAL MATTERS.
(a) The Borrower, each Subsidiary, and all of their
respective properties, assets, and operations are in compliance in all
material respects with all Environmental Laws. The Borrower is not
aware of, nor has the Borrower received notice of, any past, present,
or future conditions, events, activities, practices, or incidents
which may interfere with or prevent the material compliance or
continued material compliance of the Borrower and the Subsidiaries
with all Environmental Laws;
CREDIT AGREEMENT - Page 46
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(b) The Borrower and each Subsidiary have obtained all
permits, licenses, and authorizations that are required under
applicable Environmental Laws the failure of which to obtain would
result in a Material Adverse Effect. All such permits are in good
standing and the Borrower and its Subsidiaries are in compliance in
all material respects with all of the terms and conditions of such
permits;
(c) No Hazardous Materials exist on, about, or within or
have been used, generated, stored, transported, disposed of on, or
Released from any of the properties or assets of the Borrower or any
Subsidiary except in compliance in all material respects with
Environmental Laws. The use which the Borrower and the Subsidiaries
make and intend to make of their respective properties and assets will
not result in the use, generation, storage, transportation,
accumulation, disposal, or Release of any Hazardous Material on, in,
or from any of their properties or assets except in compliance in all
material respects with Environmental Laws;
(d) Neither the Borrower nor any of the Subsidiaries nor
any of their respective currently or previously owned or leased
properties or operations is subject to any outstanding or, to the best
of its knowledge, threatened order from or agreement with any
Governmental Authority or other Person or subject to any judicial or
administrative proceeding with respect to (i) failure to comply with
Environmental Laws, (ii) Remedial Action, or (iii) any Environmental
Liabilities arising from a Release or threatened Release;
(e) There are no conditions or circumstances associated
with the currently or previously owned or leased properties or
operations of the Borrower or any of the Subsidiaries that could
reasonably be expected to give rise to any Environmental Liabilities;
(f) Neither the Borrower nor any of the Subsidiaries is a
treatment, storage, or disposal facility requiring a permit under the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et
seq., regulations thereunder or any comparable provision of state law.
The Borrower and the Subsidiaries are in compliance with all
applicable financial responsibility requirements of all Environmental
Laws in all material respects;
(g) Neither the Borrower nor any of the Subsidiaries has
filed or failed to file any notice required under applicable
Environmental Law reporting a Release; and
(h) No Lien arising under any Environmental Law has
attached to any property or revenues of the Borrower or the
Subsidiaries.
Section 8.20 DEPOSIT AND BROKERAGE ACCOUNTS. SCHEDULE 1.1(a) sets
forth as of the Closing Date all lockbox agreements, deposit accounts and
brokerage accounts of the Borrower and the Subsidiaries.
CREDIT AGREEMENT - Page 47
<PAGE> 54
ARTICLE 9
Positive Covenants
The Borrower covenants and agrees that, as long as the Obligations or
any part thereof are outstanding or any Bank has any Commitment hereunder, the
Borrower will perform and observe the following positive covenants:
Section 9.1 REPORTING REQUIREMENTS. The Borrower will furnish to
the Agent and each Bank:
(a) ANNUAL FINANCIAL STATEMENTS. As soon as available,
and in any event within one hundred twenty (120) days after the end of
each Fiscal Year of the Borrower, beginning with the Fiscal Year
ending December 31, 1995, (i) a copy of the annual audit report of the
Borrower and the Subsidiaries for such Fiscal Year containing, on a
consolidated basis, balance sheets and statements of income, retained
earnings, and cash flow as at the end of such Fiscal Year and for the
Fiscal Year then ended, in each case setting forth in comparative form
the figures for the preceding Fiscal Year, all in reasonable detail
and audited and certified by independent certified public accountants
of recognized standing acceptable to the Agent, to the effect that
such report has been prepared in accordance with GAAP;
(b) MONTHLY FINANCIAL STATEMENTS. As soon as available,
and in any event within forty-five (45) days after the end of each
month (or with respect to the financial statements delivered for the
month ending December 31, within sixty (60) days after the end of such
month), a copy of an unaudited financial report of the Borrower and
the Subsidiaries as of the end of such period and for the portion of
the Fiscal Year then ended containing, on a consolidated and
consolidating basis, balance sheets and statements of income, retained
earnings, and cash flow, in each case setting forth in comparative
form the figures for the corresponding period of the preceding Fiscal
Year, all in reasonable detail certified by the chief executive
officer or chief financial officer of the Borrower to have been
prepared in accordance with GAAP (but excluding footnotes) and to
fairly present (subject to year-end audit adjustments) the financial
condition and results of operations of the Borrower and the
Subsidiaries, on a consolidated and consolidating basis, at the date
and for the periods indicated therein;
(c) COMPLIANCE CERTIFICATE. Within forty-five (45) days
after the end of each of the first three (3) Fiscal Quarters of each
Fiscal Year, within sixty (60) days after the end of the last Fiscal
Quarter of each Fiscal Year, and accompanying the annual financial
statements delivered in accordance with SECTION 9.1(a), a Compliance
Certificate, together with the schedules thereto setting forth the
calculations supporting the computations therein;
(d) BORROWING BASE REPORT. As soon as available, and in
any event within thirty (30) days after the end of each month, a
Borrowing Base Report, in substantially the form of EXHIBIT "C"
hereto, certified by the chief executive officer or chief financial
officer of the Borrower together with the Receivable aging report
required thereby;
(e) PROJECTIONS. As soon as available and in any event
forty-five (45) days after the beginning of each Fiscal Year of
Borrower, Borrower will deliver a forecasted consolidated balance
sheet and statements of income and cash flow of Borrower and the
CREDIT AGREEMENT - Page 48
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Subsidiaries on a Fiscal Quarter by Fiscal Quarter basis, including
the assumptions utilized in the preparation of such projections (in
narrative form) for the forthcoming Fiscal Year and a proforma
projection of the Borrower's compliance with the financial covenants
in this Agreement for the same period;
(f) MANAGEMENT LETTERS. Promptly upon receipt thereof, a
copy of any management letter or written report submitted to the
Borrower or any Subsidiary by independent certified public accountants
with respect to the business, condition (financial or otherwise),
operations, prospects, or properties of the Borrower or any
Subsidiary;
(g) NOTICE OF LITIGATION. Promptly after the
commencement thereof, notice of all actions, suits, and proceedings
before any Governmental Authority or arbitrator affecting the Borrower
or any Subsidiary which, if determined adversely to the Borrower or
such Subsidiary, could reasonably be expected to have a Material
Adverse Effect;
(h) NOTICE OF DEFAULT. As soon as possible and in any
event within five (5) Business Days after an officer of the Borrower
has knowledge of the occurrence of each Default, a written notice
setting forth the details of such Default and the action that the
Borrower has taken and proposes to take with respect thereto;
(i) ERISA REPORTS. If requested by the Agent, promptly
after the filing or receipt thereof, copies of all reports, including
annual reports, and notices which the Borrower or any Subsidiary files
with or receives from the PBGC or the U.S. Department of Labor under
ERISA; and as soon as possible and in any event within five (5)
Business Days after the Borrower or any Subsidiary knows or has reason
to know that any Reportable Event or Prohibited Transaction has
occurred with respect to any Plan or that the PBGC or the Borrower or
any Subsidiary has instituted or will institute proceedings under
Title IV of ERISA to terminate any Plan, a certificate of the chief
financial officer of the Borrower setting forth the details as to such
Reportable Event or Prohibited Transaction or Plan termination and the
action that the Borrower proposes to take with respect thereto;
(j) REPORTS TO OTHER CREDITORS. Promptly after the
furnishing thereof, copies of any statement or report furnished to any
other party pursuant to the terms of any indenture, loan, or credit or
similar agreement not otherwise required to be furnished to the Agent
and the Banks pursuant to any other clause of this Section;
(k) NOTICE OF MATERIAL ADVERSE EFFECT. As soon as
possible and in any event within five (5) Business Days of the
occurrence thereof, written notice of any matter that could reasonably
be expected to have a Material Adverse Effect;
(l) PROXY STATEMENTS, ETC. As soon as available, one
copy of each financial statement, report, notice or proxy statement
sent by the Borrower or any Subsidiary to its stockholders generally
and one copy of each regular, periodic or special report, registration
statement, or prospectus filed by the Borrower or any Subsidiary with
any securities exchange or the Securities and Exchange Commission or
any successor agency; and
CREDIT AGREEMENT - Page 49
<PAGE> 56
(m) GENERAL INFORMATION. Promptly, such other
information concerning the Borrower or any Subsidiary as the Agent or
any Bank may from time to time reasonably request.
Section 9.2 MAINTENANCE OF EXISTENCE; CONDUCT OF BUSINESS. The
Borrower will, and will cause each Subsidiary to, preserve and maintain its
corporate existence and all of its leases, privileges, licenses, permits,
franchises, qualifications, and rights that are necessary or desirable in the
ordinary conduct of its business. The Borrower will, and will cause each
Subsidiary to, conduct its business in an orderly and efficient manner in
accordance with good business practices.
Section 9.3 MAINTENANCE OF PROPERTIES. The Borrower will, and
will cause each Subsidiary to, maintain, keep, and preserve all of its material
properties necessary in the conduct of its business in good working order and
condition.
Section 9.4 TAXES AND CLAIMS. The Borrower will, and will cause
each Subsidiary to, pay or discharge at or before maturity or before becoming
delinquent (a) all taxes, levies, assessments, and governmental charges imposed
on it or its income or profits or any of its property, and (b) all lawful
claims for labor, material, and supplies, which, if unpaid, might become a Lien
upon any of its property; provided, however, that neither the Borrower nor any
Subsidiary shall be required to pay or discharge any tax, levy, assessment, or
governmental charge which is being contested in good faith by appropriate
proceedings diligently pursued, and for which adequate reserves have been
established.
Section 9.5 INSURANCE. The Borrower will, and will cause each
Subsidiary to, maintain insurance with financially sound and reputable
insurance companies in such amounts and covering such risks as are usually
carried by corporations engaged in similar businesses and owning similar
properties in the same general areas in which the Borrower and the Subsidiaries
operate, provided that in any event the Borrower will maintain and cause each
Subsidiary to maintain workmen's compensation insurance, property insurance and
comprehensive general liability insurance reasonably satisfactory to the Agent.
Each general liability insurance policy shall name the Agent as additional
insured, each insurance policy covering Collateral shall name the Agent as loss
payee and shall provide that such policy will not be canceled or materially
changed without thirty (30) days prior written notice to the Agent.
Section 9.6 INSPECTION RIGHTS. At any reasonable time and from
time to time, the Borrower will, and will cause each Subsidiary to, permit
representatives of the Agent and each Bank to examine, copy, and make extracts
from its books and records, to visit and inspect its properties, and to discuss
its business, operations, and financial condition with its officers, employees,
and independent certified public accountants.
Section 9.7 KEEPING BOOKS AND RECORDS. The Borrower will, and
will cause each Subsidiary to, maintain proper books of record and account in
which full, true, and correct entries in conformity with GAAP shall be made of
all dealings and transactions in relation to its business and activities.
CREDIT AGREEMENT - Page 50
<PAGE> 57
Section 9.8 COMPLIANCE WITH LAWS. The Borrower will, and will
cause each Subsidiary to, comply with all applicable laws (including, without
limitation, all Environmental Laws), rules, regulations, orders, and decrees of
any Governmental Authority or arbitrator other than such noncompliance which
will not have a Material Adverse Effect.
Section 9.9 COMPLIANCE WITH AGREEMENTS. The Borrower will, and
will cause each Subsidiary to, comply with all agreements, contracts, and
instruments binding on it or affecting its properties or business other than
such noncompliance which will not have a Material Adverse Effect.
Section 9.10 FURTHER ASSURANCES AND COLLATERAL MATTERS.
(a) FURTHER ASSURANCE AND EXCEPTIONS TO PERFECTION. The
Borrower will, and will cause each Subsidiary to, execute and deliver
such further documentation and take such further action as may be
requested by the Agent to carry out the provisions and purposes of the
Loan Documents and to create, preserve, protect and perfect the Liens
of the Agent for the benefit of itself and the Banks in the
Collateral; provided that prior to the occurrence of a Default,
neither Borrower nor any Granting Subsidiary shall be required to:
(i) obtain any landlord or mortgagee waivers or
subordinations;
(ii) execute or have filed any UCC Financing
Statement fixture filings, as long as the book value of the
fixtures of Borrower or a Granting Subsidiary located at any
one place of business does not exceed Ten Thousand Dollars
($10,000);
(iii) execute or have filed any UCC Financing
Statement to perfect the Liens of Agent in any computer
equipment which is owned by Borrower or a Granting Subsidiary
and which is held by a Franchisee in the ordinary course of
Borrower's or the applicable Granting Subsidiaries' business
as long as the book value of such computer equipment held by
any one Franchisee does not exceed Seven Thousand Five Hundred
Dollars ($7,500) or as long as such computer equipment is
subject to a permitted purchase money Lien;
(iv) perfect Agent's Lien in any deposit account
other than the Lockbox Accounts as long as the amount on
deposit in any such account at any time does not exceed the
amount required to be held therein to operate the Borrower's
and the Granting Subsidiaries' business in the ordinary
course;
(v) deliver any certificates of title evidencing
equipment of Borrower or a Granting Subsidiary with Agent's
Lien noted thereon as long as the aggregate amount of
equipment evidenced by certificates of title owned by the
Borrower and the Granting Subsidiaries at any time does not
exceed One Hundred Thousand Dollars ($100,000) or as long as
such equipment is encumbered by permitted purchase money
Liens; and
CREDIT AGREEMENT - Page 51
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(vi) obtain control over the brokerage account
identified in SCHEDULE 1.1(a) or any brokerage account
hereafter created in accordance with the restrictions set out
in the Borrower Security Agreement or the applicable
Subsidiary Security Agreement.
If a Default occurs or if one of the "as long as" clauses described in
clause (ii), (iii), (iv) or (v) of this SUBSECTION 9.10(a) is no
longer accurate, then Borrower shall notify the Agent and shall take
such action as the Agent may request to perfect and protect the Liens
of the Agent in the applicable Collateral.
(b) SUBORDINATION TO PURCHASE MONEY LIENS. Agent shall
be authorized, without any further action by any Bank to subordinate
the Liens granted to Agent to secure the Obligations to any purchase
money Liens granted in accordance with the permissions set out in
SECTION 10.2(g).
(c) SUBSIDIARY PLEDGE. Upon the creation or acquisition
of any Subsidiary that is not an Insignificant Subsidiary or if any
Insignificant Subsidiary's net worth or total assets increases so that
it is no longer an Insignificant Subsidiary, the Borrower shall cause
such Subsidiary to execute and deliver to Agent a Guaranty, a
Subsidiary Security Agreement and such other documentation as the
Agent may request to cause such Subsidiary to evidence, perfect or
otherwise implement the guaranty and security for the repayment of the
Obligations contemplated by a Guaranty and Subsidiary Security
Agreement. If any Subsidiary is created or acquired after the Closing
Date and such Subsidiary is not an Insignificant Subsidiary, the
Borrower shall (a) execute and deliver to the Agent an amendment to
the Borrower Pledge Agreement describing as collateral thereunder the
stock of or other ownership interests in the new Subsidiary and the
Borrower shall deliver the certificates representing such stock or
other interests to the Agent together with undated stock or other
powers duly executed in blank or (b) if the new Subsidiary is not
directly owned by the Borrower, the Borrower shall cause the
Subsidiary who owns the new Subsidiary directly to pledge the stock of
such new Subsidiary to the Agent pursuant to a pledge agreement in
similar form to the Borrower Pledge Agreement and to deliver the
certificates representing such stock or other interests to the Agent
together with undated stock or other powers duly executed in blank.
(d) POST-CLOSING MATTERS. Within thirty (30) days after
the Closing Date Borrower agrees to: (i) cause PMC to establish a
lockbox arrangement for the collection of its accounts and deliver to
the Agent the applicable Lockbox Agreements and an agreement from the
institution that maintains such account, in form and substance
satisfactory to the Agent, pursuant to which such institution
recognizes the Agent's Lien in the Lockbox Account and agrees to
transfer the collected balances therein to the Concentration Account
on a daily basis; and (ii) notify each Franchisee of the collateral
assignment to the Agent of the franchise agreement to which it is a
party in accordance with the terms of the applicable franchise
agreement and provide Agent evidence thereof. Within twenty-one (21)
days after the Closing Date, Borrower agrees to cause the Shareholders
to deliver all certificates evidencing the stock pledged under the
Shareholder Pledge Agreements to the Agent.
CREDIT AGREEMENT - Page 52
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Section 9.11 ERISA. The Borrower will, and will cause each
Subsidiary to, comply with all minimum funding requirements and all other
requirements of ERISA, if applicable, so as not to give rise to any liability
which will have a Material Adverse Effect.
Section 9.12 INTEREST RATE PROTECTION. No later than ninety (90)
days following the date at which the aggregate amount of Acquisition Loans
outstanding exceeds Fifteen Million Dollars ($15,000,000), the Borrower will
obtain acceptable interest rate protection in the form of an interest rate
swap, cap, collar or other similar mechanism satisfactory to the Agent,
designed to protect the Borrower against increases in interest rates, for a
minimum notional amount of Ten Million Dollars ($10,000,000), for a minimum
period of three (3) years and at an interest rate acceptable to the Agent.
ARTICLE 10
NEGATIVE COVENANTS
The Borrower covenants and agrees that, as long as the Obligations or
any part thereof are outstanding or any Bank has any Commitment hereunder, the
Borrower will perform and observe the following negative covenants:
Section 10.1 DEBT. The Borrower will not, and will not permit any
Subsidiary to, incur, create, assume, or permit to exist any Debt, except:
(a) Debt to the Banks pursuant to the Loan Documents;
(b) Debt described on SCHEDULE 10.1 hereto (but excluding
the Previous Senior Debt after the Closing Date), and any extensions,
renewals or refinancings of such existing Debt so long as (i) the
principal amount of such Debt after such renewal, extension or
refinancing shall not exceed the principal amount of such Debt which
was outstanding immediately prior to such renewal, extension or
refinancing, (ii) such Debt shall not be secured by any assets other
than assets securing such Debt, if any, prior to such renewal,
extension or refinancing; and (iii) to the extent any such Debt is
subordinated to the Previous Senior Debt, such Debt must be
subordinated to the Obligation on substantially the same terms;
(c) Intercompany Debt among Borrower and the
Subsidiaries; provided that the obligations of each obligor of such
Debt shall: (i) be subordinated in right of payment to the
Obligations from and after such time as any portion of the Obligations
shall become due and payable (whether at stated maturity, by
acceleration or otherwise); and (ii) the aggregate amount of such Debt
outstanding at any time which is owed by the Insignificant
Subsidiaries to Borrower or any other Subsidiary shall not exceed
Twenty-five Thousand Dollars ($25,000);
(d) Guaranties incurred in the ordinary course of
business with respect to surety and appeal bonds, performance and
return-of-money bonds and other similar obligations;
CREDIT AGREEMENT - Page 53
<PAGE> 60
(e) unsecured Debt for borrowed money or for the deferred
payment of purchase price incurred in connection with Permitted
Acquisitions and in accordance with clause (vi) of SUBSECTION 7.2(c)
hereto;
(f) Debt (including Capital Lease Obligations) incurred
after the Closing Date not to exceed Four Million Dollars ($4,000,000)
in the aggregate at any time outstanding secured by purchase money
Liens permitted by SECTION 10.2(g);
(g) Debt constituting obligations to reimburse worker's
compensation insurance companies for claims paid by such companies on
Borrower's or a Subsidiaries' behalf in accordance with the policies
issued to Borrower and the Subsidiaries;
(h) unsecured Debt of Borrower incurred to finance
insurance premiums in the ordinary course of business; and
(i) Debt other than that specifically described in
clauses (a) through (h) of this SECTION 10.1 which in the aggregate
does not exceed Fifty Thousand Dollars ($50,000).
Section 10.2 LIMITATION ON LIENS AND RESTRICTIONS ON SUBSIDIARIES.
The Borrower will not, and will not permit any Subsidiary to, incur, create,
assume, or permit to exist any Lien upon any of its property, assets, or
revenues, whether now owned or hereafter acquired, except the following, none
of which shall encumber the Collateral other than those Liens described in
clauses (a), (b), (d), (e), (g) and (h):
(a) Liens disclosed on SCHEDULE 10.2 hereto, PROVIDED any
Liens securing the Previous Senior Debt will not be permitted after
the Closing Date;
(b) Liens in favor of the Agent for the benefit of itself
and the Banks pursuant to the Loan Documents;
(c) Encumbrances consisting of minor easements, zoning
restrictions, or other restrictions on the use of real property that
do not (individually or in the aggregate) materially affect the value
of the assets encumbered thereby or materially impair the ability of
the Borrower or the Subsidiaries to use such assets in their
respective businesses, and none of which is violated in any material
respect by existing or proposed structures or land use;
(d) Liens (other than Liens relating to Environmental
Liabilities or ERISA) for taxes, assessments, or other governmental
charges that are not delinquent or which are being contested in good
faith and for which adequate reserves have been established;
(e) Liens of mechanics, materialmen, warehousemen,
carriers, landlords or other similar statutory Liens securing
obligations that are not yet due or are being contested in good faith
by appropriate proceedings diligently pursued and for which adequate
reserves have been established and are incurred in the ordinary course
of business;
CREDIT AGREEMENT - Page 54
<PAGE> 61
(f) Liens resulting from good faith deposits to secure
payments of workmen's compensation or other social security programs
or to secure the performance of tenders, statutory obligations, surety
and appeal bonds, bids, contracts (other than for payment of Debt);
(g) Liens for purchase money obligations (including the
rights of lessors under capitalized leases) PROVIDED that: (i) the
purchase of the asset subject to any such Lien is permitted under
SECTION 11.7 hereto; (ii) the Debt secured by any such Lien is
permitted under SECTION 10.1 hereto; and (iii) any such Lien encumbers
only the asset so purchased;
(h) Any attachment or judgment Lien not constituting an
Event of Default; and
(i) Liens arising from filing UCC financing statements
regarding leases permitted by this Agreement.
Neither Borrower nor any Subsidiary shall enter into or assume any agreement
(other than the Loan Documents) prohibiting the creation or assumption of any
Lien upon its properties or assets, whether now owned or hereafter acquired;
provided that, in connection with the creation of purchase money Liens, the
Borrower or the Subsidiary may agree that it will not permit any other Liens to
encumber the asset subject to such purchase money Lien. Except as provided
herein, Borrower will not and will not permit any Subsidiaries directly or
indirectly to create or otherwise cause or suffer to exist or become effective
any consensual encumbrance or restriction of any kind on the ability of any
Subsidiary to: (1) pay dividends or make any other distribution on any of such
Subsidiary's capital stock owned by Borrower or any Subsidiary of Borrower; (2)
subject to subordination provisions, pay any Debt owed to Borrower or any other
Subsidiary; (3) make loans or advances to Borrower or any other Subsidiary; or
(4) transfer any of its property or assets to Borrower or any other Subsidiary.
Section 10.3 MERGERS, ETC. The Borrower will not, and will not
permit any Subsidiary to, become a party to a merger or consolidation, or
purchase or otherwise acquire all or a substantial part of the business or
assets of any Person or any shares or other evidence of beneficial ownership of
any Person, or wind-up, dissolve, or liquidate itself; provided that as long as
no Default exists or would result therefrom and provided the Borrower gives the
Agent and the Banks prior written notice:
(a) Borrower and the Subsidiaries may acquire shares or
other evidence of beneficial ownership of a Person in accordance with
the restrictions set forth in SUBSECTIONS 10.5(h) AND 10.5(i) hereof;
(b) Borrower and the Subsidiaries may make a Permitted
Acquisition if:
(i) the Borrower or such Subsidiary complies with
the conditions set forth in SECTION 7.2 hereto on or prior to
the date of the consummation of such Permitted Acquisition
whether or not it intends on requesting an advance under the
Acquisition Commitments or the Revolving Acquisition
Sublimits; and
CREDIT AGREEMENT - Page 55
<PAGE> 62
(ii) the consideration paid by Borrower or the
applicable Subsidiary in connection with such acquisition is:
(A) paid in cash which (1) is
borrowed under the Primary Revolving Acquisition
Sublimit, (2) is borrowed under the Acquisition
Commitments in accordance with the terms thereof, (3)
is borrowed under the Secondary Revolving Acquisition
Sublimit, and/or (4) represents the cash proceeds
from the sale of the stock or assets of PMC which
were not required to be applied to the Revolving
Loans in accordance with SECTION 10.8; provided the
Borrower or a Subsidiary will not be permitted to pay
cash derived from the sources described in clauses
(3) or (4) above, unless as of the date of the
payment of such cash for the acquisition in question
and after giving effect thereto, no Default exists
and the sum of the Borrowing Base minus the Agency
Account Reserve exceeds the Outstanding Revolving
Credit by not less than Two Million Dollars
($2,000,000), and/or
(B) stock of Borrower issued in
accordance with the restrictions set out in SECTION
10.6; and/or
(C) financed with Debt incurred in
accordance with clause (vi) of SUBSECTION 7.2(c)
hereto;
(c) Borrower may consummate the Stock Repurchase in
accordance with the restrictions set forth in SECTION 10.4(iii) and
the repurchases of stock, options and warrants in accordance with
SECTION 10.4(iv);
(d) any Subsidiary may merge or consolidate with Borrower
(provided Borrower is the surviving entity) or with any wholly-owned,
direct Subsidiary of Borrower or, in connection with a Permitted
Acquisition consummated in accordance with the restrictions set out in
SECTION 10.3(b), any other Person that, in each case is or becomes,
simultaneously with such transaction, an Obligated Party (by execution
of a Guaranty, Subsidiary Security Agreement and related documents)
and a wholly-owned, direct Subsidiary of Borrower;
(e) Borrower may merge or consolidate with another Person
in connection with a Permitted Acquisition consummated in accordance
with the restrictions set out in SECTION 10.3(b) if the Borrower is
the surviving entity;
(f) Borrower may merge or consolidate with another
corporation established by Borrower for the sole purpose of changing
Borrower's state of incorporation even if the Borrower does not
survive if the surviving corporation expressly assumes the Obligations
of the Borrower under the Loan Documents pursuant to such
documentation as the Agent may require, Borrower takes such other
actions as the Agent may require to create or ensure the continued
existence, perfection and priority of the Liens of the Agent in the
property and stock of the surviving corporation and the terms and
provisions
CREDIT AGREEMENT - Page 56
<PAGE> 63
of the surviving corporation's articles of incorporation are in form
and substance satisfactory to the Agent;
(g) a Subsidiary may wind-up, dissolve, or liquidate if
all of its assets have been transferred in accordance with the
restrictions set forth in SECTION 10.8; and
(h) an Insignificant Subsidiary may wind-up, dissolve, or
liquidate.
Section 10.4 RESTRICTED JUNIOR PAYMENTS. Borrower will not and
will not permit any Subsidiary to directly or indirectly declare, order, pay,
make or set apart any sum for (a) any dividend or other distribution, direct or
indirect, on account of any shares of any class of stock of Borrower or any
Subsidiary now or hereafter outstanding; (b) any redemption, conversion,
exchange, retirement, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any shares of any class of stock
of Borrower or any Subsidiary now or hereafter outstanding; or (c) any payment
made to retire, or to obtain the surrender of, any outstanding warrants,
options or other rights to acquire shares of any class of stock of Borrower or
any of its Subsidiaries now or hereafter outstanding except:
(i) Subsidiaries of Borrower may make, declare and pay
dividends and make other distributions with respect to their capital
stock (A) to the extent necessary to permit Borrower to pay the
Obligations and to permit Borrower to pay expenses incurred in the
ordinary course of business, and (B) additionally with respect to PMC
and in connection with the sale of PMC or its assets, to the extent
necessary to cancel the indebtedness evidenced by the intercompany
note executed by Borrower and payable to the order of PMC;
(ii) Borrower and the Subsidiaries may declare and pay
dividends on its common stock payable solely in shares of common
stock;
(iii) if prior written notice is provided to Agent and the
Banks, Borrower may set apart and pay sums for the acquisition of up
to 54,594 shares of its common stock held by the Joshua Charitable
Trust or other Persons who are not Shareholders or an Affiliate of a
Shareholder (a "STOCK REPURCHASE") if:
(A) any Stock Repurchase from the Joshua
Charitable Trust is consummated on or before January 31, 1998
and any other Stock Repurchase is consummated on or before
July 31, 1996;
(B) the aggregate amount paid for all Stock
Repurchases since the Closing Date does not exceed One Million
Five Hundred Thousand Dollars ($1,500,000);
(C) As of the date the payment is made for any
Stock Repurchase other than a Stock Repurchase consummated in
connection with a public tender offer and after giving effect
thereto, no Default shall exist and the sum of the Borrowing
Base minus the Agency Account Reserve shall exceed the
Outstanding Revolving Credit by not less than Five Million
Dollars ($5,000,000); and
CREDIT AGREEMENT - Page 57
<PAGE> 64
(D) For any Stock Repurchase consummated or to be
consummated pursuant to a public tender offer, as of any date
selected by Borrower by notice to Agent which is no more than
sixty (60) days prior to the date the payment for such Stock
Repurchase is made and after giving pro forma effect to such
payment, no Default shall exist and the Borrowing Base shall
exceed the Outstanding Revolving Credit by not less than Five
Million Dollars ($5,000,000); and
(iv) as long as no Default exists or would result
therefrom, Borrower may repurchase its common stock or any warrants or
options to purchase its common stock from its and the Subsidiaries'
officers, directors and employees who received such stock or options
from an employee stock option or ownership plan established by
Borrower (including repurchases arising as a result of the death,
disability or termination of any such officers, directors and
employees); provided that the aggregate amount paid for such
repurchases in any Fiscal Year does not exceed Two Hundred Fifty
Thousand Dollars ($250,000).
Section 10.5 INVESTMENTS. The Borrower will not, and will not
permit any Subsidiary to, make or permit to remain outstanding any advance,
loan, extension of credit, or capital contribution to or investment in any
Person, or purchase or own any stocks, bonds, notes, debentures, or other
securities of any Person, or be or become a joint venturer with or partner of
any Person, except:
(a) in connection with a Permitted Acquisition
consummated in accordance with SECTION 10.3 hereto;
(b) Borrower may own stock of the Subsidiaries existing
on the Closing Date and notes payable by Subsidiaries in accordance
with the restrictions set forth in SECTION 10.1 hereto;
(c) readily marketable direct obligations of the United
States of America or any agency thereof with maturities of one year or
less from the date of acquisition;
(d) fully insured certificates of deposit with maturities
of one year or less from the date of acquisition issued by any
commercial bank operating in the United States of America having
capital and surplus in excess of Fifty Million Dollars ($50,000,000);
(e) commercial paper of a domestic issuer if at the time
of purchase such paper is rated in one of the two highest rating
categories of Standard and Poor's Corporation or Moody's Investors
Service, Inc.;
(f) loans and advances to employees for business expenses
incurred in the ordinary course of business not to exceed Seventy-Five
Thousand Dollars ($75,000) in the aggregate at any time outstanding;
(g) existing investments described on SCHEDULE 10.5
hereto and any capital contribution to or investment in any Person or
any purchase of any stocks, bonds, notes
CREDIT AGREEMENT - Page 58
<PAGE> 65
or other securities of any Person with the proceeds from the sale or
other disposition of the existing investments described on SCHEDULE
10.5 hereto;
(h) Borrower may make additional capital contributions to
or investments in or purchase any stocks, bonds, or other equity
securities authorized to be issued under SECTION 10.6 of a Granting
Subsidiary or any other wholly owned, direct Subsidiary; provided that
(i) to the extent such additional capital contributions, investments
or securities purchases cause such Subsidiary to cease to be an
Insignificant Subsidiary, Borrower shall cause such Subsidiary to
become (pursuant to the execution of a Guaranty, Subsidiary Security
Agreement and related documents) a Granting Subsidiary simultaneously
with such contribution, investment or purchase and (ii) any stocks,
bonds, or other equity securities obtained by Borrower in connection
with any such contribution, investment or purchase are pledged to the
Agent under the terms of the Borrower Pledge Agreement or Borrower
Security Agreement; and
(i) loans, advances or investments other than those
described in CLAUSES (a) THROUGH (h) of this SECTION 10.5 if the
aggregate principal amount of such loans and advances outstanding plus
the aggregate acquisition cost of the outstanding investments never
exceeds One Hundred Thousand Dollars ($100,000).
Section 10.6 LIMITATION ON ISSUANCE OF CAPITAL STOCK. The
Borrower will not, and will not permit any Subsidiary to, at any time issue,
sell, assign, or otherwise dispose of (a) any of its capital stock, (b) any
securities exchangeable for or convertible into or carrying any rights to
acquire any of its capital stock, or (c) any option, warrant, or other right to
acquire any of its capital stock, except:
(i) Subsidiaries may issue stock to Borrower if such
stock is pledged to the Agent under the terms of the Borrower Pledge
Agreement; and
(ii) Borrower may issue capital stock or any options,
warrants, or other rights to acquire any of its capital stock;
provided that (x), after giving effect to the issuance of such stock
and the exercise of any such options, warrants or other right, the
Agent shall have pledged to it under the Shareholder Pledge Agreements
at least 51% of the total voting power of all classes of capital stock
then outstanding of the Borrower entitled (without regard to the
occurrence of any contingency and otherwise on a fully diluted basis)
to vote in elections of directors of the Borrower and (y) prior to
such issuance Borrower shall have provided Agent with a Voting Control
Certificate properly completed. Notwithstanding the foregoing,
Borrower shall not be required to comply with this SECTION 10.6 in
connection with an initial public offering of its common stock if the
proceeds of such offering are applied to pay the Obligations in full
and the Commitments are then terminated.
Section 10.7 TRANSACTIONS WITH AFFILIATES. The Borrower will not,
and will not permit any Subsidiary to, enter into any transaction, including,
without limitation, the purchase, sale, or exchange of property or the
rendering of any service, with any Affiliate of the Borrower or such
Subsidiary, except in the ordinary course of and pursuant to the reasonable
requirements of the Borrower's or such Subsidiary's business and upon fair and
reasonable terms no less
CREDIT AGREEMENT - Page 59
<PAGE> 66
favorable to the Borrower or such Subsidiary than would be obtained in a
comparable arms-length transaction with a Person not an Affiliate of the
Borrower or such Subsidiary.
Section 10.8 DISPOSITION OF ASSETS. The Borrower will not, and
will not permit any Subsidiary to, sell, lease, assign, transfer, or otherwise
dispose of any of its assets, except (a) dispositions of inventory in the
ordinary course of business; (b) dispositions of unnecessary, obsolete or worn
out equipment; (c) assignments of Receivables for fair value by Granting
Subsidiaries to the Borrower; (d) licensing of intellectual property in the
ordinary course of business; (e) the disposition by one Subsidiary of assets to
Borrower or to any Subsidiary that is a Granting Subsidiary or becomes
(pursuant to the execution of a Guaranty, Subsidiary Security Agreement and
related documents) simultaneously with such disposition, a Granting Subsidiary
and a wholly owned, direct Subsidiary of Borrower; and (f) the disposition for
fair value of the stock or assets of PMC, if the chief executive officer or
chief financial officer of the Borrower delivers a certification to Agent
showing the calculation of the cash proceeds received from the disposition of
such stock or assets (net of the direct costs attributable to such
disposition), such proceeds are applied to repay the Revolving Loans, to the
extent outstanding on the date received, and no Default exists or would result
therefrom. Upon the sale of the stock or assets of PMC in accordance with this
SECTION 10.8, the Agent shall, and is hereby authorized, to release the Liens
therein created by the Borrower Pledge Agreement and the Subsidiary Security
Agreement executed by PMC and to release PMC from its obligations under the
Guaranty to which it is a party without any further action by any Bank.
Section 10.9 SALE AND LEASEBACK. The Borrower will not, and will
not permit any Subsidiary to, enter into any arrangement with any Person
pursuant to which it leases from such Person real or personal property that has
been or is to be sold or transferred, directly or indirectly, by it to such
Person.
Section 10.10 LINES OF BUSINESS. The Borrower will not, and will
not permit any Subsidiary to, engage in any line or lines of business activity
other than the businesses in which they are engaged on the date hereof.
ARTICLE 11
FINANCIAL COVENANTS
The Borrower covenants and agrees that, as long as the Obligations or
any part thereof are outstanding or any Bank has any Commitment hereunder, the
Borrower will perform and observe the following financial covenants:
Section 11.1 CONSOLIDATED NET WORTH. Borrower will at all times
maintain Consolidated Net Worth in an amount not less than the sum of (a) Nine
Million Thirty-Two Thousand Nine Hundred Six Dollars ($9,032,906.00); PLUS (b)
one hundred percent (100%) of the Borrower's Net Income for the month ending
December 31, 1995; PLUS (c) fifty percent (50%) of the Borrower's Net Income
for each Fiscal Quarter, beginning with the Fiscal Quarter ended March 31,
1996, to the extent the Fiscal Quarter has been completed MINUS (c) the Dollar
amount of all Permitted Stock Repurchases made since the Closing Date to the
date of determination. If Net Income for a Fiscal Quarter is negative, no
adjustment to the requisite level of Consolidated
CREDIT AGREEMENT - Page 60
<PAGE> 67
Net Worth shall be made. The phrase "Consolidated Net Worth" means, at any
particular time, all amounts which, in conformity with GAAP, would be included
as stockholders' equity on a consolidated balance sheet of the Borrower and the
Subsidiaries.
Section 11.2 SENIOR DEBT TO ADJUSTED EBITDA. As of the end of
each Fiscal Quarter, the Borrower shall not permit the ratio of the Senior Debt
outstanding as of the date of determination to Adjusted EBITDA for the four (4)
Fiscal Quarters then ending to exceed 2.75 to 1.00.
Section 11.3 TOTAL FUNDED DEBT TO ADJUSTED EBITDA. As of the end
of each Fiscal Quarter, the Borrower shall not permit the ratio of Total Funded
Debt outstanding as of the date of determination to Adjusted EBITDA for the
four (4) Fiscal Quarters then ending to exceed 3.25 to 1.00.
Section 11.4 INTEREST COVERAGE. As of the end of each Fiscal
Quarter, the Borrower shall not permit the ratio of EBIT to Net Interest
Expense, both calculated for the four (4) Fiscal Quarters, then ending to be
less than 4.25 to 1.00. The term "EBIT" means, for any period, the total of
the following for the Borrower and its Subsidiaries each calculated without
duplication on a consolidated basis for such period: (a) Net Income; PLUS (b)
any provision for (or less any benefit from) income or franchise taxes included
in determining Net Income; PLUS (c) Net Interest Expense deducted in
determining Net Income.
Section 11.5 Fixed Charge Coverage. The Borrower shall not permit
the ratio of Operating Cash Flow to Fixed Charges computed on the basis of the
Operating Cash Flow and Fixed Charges for the four (4) Fiscal Quarters ending
on the last day of each Fiscal Quarter during the periods set forth below to be
less than the amount set forth below for such period.
<TABLE>
<CAPTION>
==============================================
Period Amount
==============================================
<S> <C>
Closing Date through
December 31, 1997 1.25 to 1.00
----------------------------------------------
January 1, 1998 and at
all times thereafter 1.10 to 1.00
==============================================
</TABLE>
The phrase "Operating Cash Flow" means, for any period, the total of the
following for Borrower and the Subsidiaries calculated on a consolidated basis
without duplication for such period: (a) EBITDA minus (b) cash federal and
state income taxes paid minus (c) all Capital Expenditures which are not
financed with Debt permitted by SECTION 10.1(f). The phrase "Fixed Charges"
means, for any period, the total of the following for Borrower and the
Subsidiaries calculated on a consolidated basis without duplication for such
period: (A) Net Interest Expense, plus (B) scheduled amortization of Debt paid
or payable (excluding, to the extent included, nonpermanent principal
repayments under the Revolving Loans) plus (C) the Dollar amount paid in
connection with Permitted Stock Repurchases and other repurchases of stock,
options or warrants consummated in accordance with SECTION 10.4(iv).
Section 11.6 WORKING CAPITAL. The Borrower shall maintain at all
times a ratio of Consolidated Current Assets to Consolidated Current
Liabilities of not less than 2.00 to 1.00.
CREDIT AGREEMENT - Page 61
<PAGE> 68
The phrase "Consolidated Current Assets" means, at the time of determination,
the sum of the following for Borrower and the Subsidiaries calculated on a
consolidated basis: cash, cash equivalents, and accounts. The phrase
"Consolidated Current Liabilities" means, at the time of determination, the sum
of the following for Borrower and the Subsidiaries calculated on a consolidated
basis: accounts payable and accrued expenses payable.
Section 11.7 CAPITAL EXPENDITURE LIMITS. The aggregate amount of
all Capital Expenditures of Borrower and the Subsidiaries during any Fiscal
Year will not exceed the Dollar amount set forth in the table below opposite
the applicable Fiscal Year.
<TABLE>
<CAPTION>
=================================================================
Fiscal Year Amount
=================================================================
<S> <C>
Ending December 31, 1996 $2,000,000
-----------------------------------------------------------------
Each Fiscal Year thereafter $500,000
=================================================================
</TABLE>
ARTICLE 12
DEFAULT
Section 12.1 EVENTS OF DEFAULT. Each of the following shall be
deemed an "Event of Default":
(a) The Borrower shall fail to pay (i) when due any
principal payable under any Loan Document or any part thereof; (ii)
within three (3) Business Days of the date due any interest or fees
payable under the Loan Documents or any part thereof; and (iii) within
five (5) Business Days after the date Borrower receives written notice
of the failure to pay when due any other Obligation or any part
thereof.
(b) Any representation, warranty or certification made or
deemed made by the Borrower or any Obligated Party (or any of their
respective officers) in any Loan Document or in any certificate,
report, notice, or financial statement furnished at any time in
connection with any Loan Document shall be false, misleading, or
erroneous in any material respect when made or deemed to have been
made.
(c) The Borrower shall fail to perform, observe, or
comply with any covenant, agreement, or term contained in ARTICLE 10
or ARTICLE 11 of this Agreement or SECTION 2.4 of the Borrower Pledge
Agreement or Sections 4.1, 4.4, 4.5, 4.6, or 4.7 of the Borrower
Security Agreement. Any Granting Subsidiary shall fail to perform,
observe or comply with any covenant, agreement or term contained in
Sections 4.2, 4.3, 4.7, 4.8, 4.9, or 4.10 of the Subsidiary Security
Agreement to which it is a party. Any Shareholder shall fail to
perform, observe, or comply with any covenant, agreement, or term
contained in Sections 3.1, 3.2, 3.3, or 3.4, of its Shareholder Pledge
Agreement.
(d) The Borrower shall fail to perform, observe or comply
with any covenant, agreement or term contained in SECTION 9.1 of this
Agreement and such failure shall continue for five (5) Business Days.
CREDIT AGREEMENT - Page 62
<PAGE> 69
(e) The Borrower or any Obligated Party shall fail to
perform, observe, or comply with any other covenant, agreement, or
term contained in any Loan Document (other than covenants to pay the
Obligations, the covenants described in SUBSECTIONS 12.1(c) AND (d))
and such failure shall continue for a period of fifteen (15) Business
Days after the earlier of (i) the date the Agent or any Bank provides
Borrower with notice thereof or (ii) the date the Borrower should have
notified the Agent thereof in accordance with SUBSECTION 9.1(h)
hereof.
(f) The Borrower, any Subsidiary, or any Obligated Party
(other than a Shareholder) shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian,
trustee, examiner, liquidator or the like of itself or of all or a
substantial part of its property, (ii) make a general assignment for
the benefit of its creditors, (iii) commence a voluntary case under
the United States Bankruptcy Code (as now or hereafter in effect, the
"Bankruptcy Code"), (iv) institute any proceeding or file a petition
seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, liquidation, dissolution, winding-up, or
composition or readjustment of debts, (v) fail to controvert in a
timely and appropriate manner, or acquiesce in writing to, any
petition filed against it in an involuntary case under the Bankruptcy
Code, (vi) admit in writing its inability to, or be generally unable
to pay its debts as such debts become due, or (vii) take any corporate
action for the purpose of effecting any of the foregoing.
(g) A proceeding or case shall be commenced, without the
application, approval or consent of the Borrower, any Subsidiary, or
any Obligated Party (other than a Shareholder), in any court of
competent jurisdiction, seeking (i) its reorganization, liquidation,
dissolution, arrangement or winding-up, or the composition or
readjustment of its debts, (ii) the appointment of a receiver,
custodian, trustee, examiner, liquidator or the like of the Borrower
or such Subsidiary or Obligated Party (other than a Shareholder) or of
all or any substantial part of its property, or (iii) similar relief
in respect of the Borrower or such Subsidiary or Obligated Party
(other than a Shareholder) under any law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or adjustment
of debts, and such proceeding or case shall continue undismissed, or
an order, judgment or decree approving or ordering any of the
foregoing shall be entered and continue unstayed and in effect, for a
period of sixty (60) or more days; or an order for relief against the
Borrower, any Subsidiary, or any Obligated Party (other than a
Shareholder) shall be entered in an involuntary case under the
Bankruptcy Code.
(h) The Borrower, any Subsidiary, or any Obligated Party
(other than a Shareholder) shall fail to discharge within a period of
thirty (30) days after the commencement thereof any attachment,
sequestration, forfeiture, or similar proceeding or proceedings
involving an aggregate amount in excess of Five Hundred Thousand
Dollars ($500,000) against any of its assets or properties.
(i) A final judgment or judgments for the payment of
money in excess of Five Hundred Thousand Dollars ($500,000) in the
aggregate shall be rendered by a court or courts against the Borrower,
any Subsidiaries, or any Obligated Party (other than a
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Shareholder) and the same shall not be discharged (or provision shall
not be made for such discharge), or a stay of execution thereof shall
not be procured, within thirty (30) days from the date of entry
thereof and the Borrower or the relevant Subsidiary or Obligated Party
(other than a Shareholder) shall not, within said period of thirty
(30) days, or such longer period during which execution of the same
shall have been stayed, appeal therefrom and cause the execution
thereof to be stayed during such appeal.
(j) The Borrower, any Subsidiary, or any Obligated Party
(other than a Shareholder) shall fail to pay when due any principal of
or interest on any Debt if the aggregate principal amount of the
affected Debt equals or exceeds Five Hundred Thousand Dollars
($500,000) (other than the Obligations), or the maturity of any such
Debt shall have been accelerated, or any such Debt shall have been
required to be prepaid prior to the stated maturity thereof or any
event shall have occurred with respect to any Debt in the aggregate
principal amount equal to or in excess of One Million Dollars
($1,000,000) that permits any holder or holders of such Debt or any
Person acting on behalf of such holder or holders to accelerate the
maturity thereof or require any such prepayment.
(k) This Agreement shall cease to be in full force and
effect or shall be declared null and void or the validity or
enforceability thereof shall be contested or challenged by the
Borrower, any Subsidiary, any Obligated Party or the Borrower or any
Obligated Party shall deny that it has any further liability or
obligation under any of the Loan Documents, or any lien or security
interest created by the Loan Documents shall for any reason (other
than the negligence of the Agent or the release thereof in accordance
with the Loan Documents) cease to be a valid, first priority perfected
security interest in and lien upon any of the Collateral purported to
be covered thereby.
(l) Any of the following events shall occur or exist with
respect to the Borrower or any ERISA Affiliate: (i) any Prohibited
Transaction involving any Plan; (ii) any Reportable Event with respect
to any Plan; (iii) the filing under Section 4041 of ERISA of a notice
of intent to terminate any Plan or the termination of any Plan; (iv)
any event or circumstance that might constitute grounds entitling the
PBGC to institute proceedings under Section 4042 of ERISA for the
termination of, or for the appointment of a trustee to administer, any
Plan, or the institution by the PBGC of any such proceedings; or (v)
complete or partial withdrawal under Section 4201 or 4204 of ERISA
from a Multiemployer Plan or the reorganization, insolvency, or
termination of any Multiemployer Plan; and in each case above, such
event or condition, together with all other events or conditions, if
any, have subjected or could in the reasonable opinion of Required
Banks subject the Borrower to any tax, penalty, or other liability to
a Plan, a Multiemployer Plan, the PBGC, or otherwise (or any
combination thereof) which in the aggregate exceed or could reasonably
be expected to exceed One Million Dollars ($1,000,000).
(m) Any Person or group (as defined in Section 13(d)(3)
or 14(d)(2) of the Exchange Act) other than the Shareholders shall
become the direct or indirect beneficial owner (as defined in Rule
13d-3 under the Exchange Act) of more than 49% of the total voting
power of all classes of capital stock then outstanding of the Borrower
entitled
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(without regard to the occurrence of any contingency) to vote in
elections of directors of the Borrower.
Section 12.2 REMEDIES. If any Event of Default shall occur and be
continuing, the Agent may (and if directed by Required Banks, shall) do any one
or more of the following:
(a) ACCELERATION. By notice to the Borrower, declare all
outstanding principal of and accrued and unpaid interest on the Notes
and all other amounts payable by the Borrower under the Loan Documents
immediately due and payable, and the same shall thereupon become
immediately due and payable, without further notice, demand,
presentment, notice of dishonor, notice of acceleration, notice of
intent to accelerate, protest, or other formalities of any kind, all
of which are hereby expressly waived by the Borrower.
(b) TERMINATION OF COMMITMENTS. Terminate the
Commitments, including, without limitation, the obligation of the
Agent to issue Letters of Credit, without notice to the Borrower.
(c) JUDGMENT. Reduce any claim to judgment.
(d) FORECLOSURE. Foreclose or otherwise enforce any Lien
granted to the Agent for the benefit of itself and the Banks to secure
payment and performance of the Obligations in accordance with the
terms of the Loan Documents.
(e) RIGHTS. Exercise any and all rights and remedies
afforded by the laws of the State of Texas or any other jurisdiction,
by any of the Loan Documents, by equity, or otherwise.
PROVIDED, HOWEVER, that upon the occurrence of an Event of Default under
SUBSECTIONS 12.1(f) or (g) hereof, the Commitments of all of the Banks shall
automatically terminate (including, without limitation, the obligation of the
Agent to issue Letters of Credit), and the outstanding principal of and accrued
and unpaid interest on the Notes and all other amounts payable by the Borrower
under the Loan Documents shall thereupon become immediately due and payable
without notice, demand, presentment, notice of dishonor, notice of
acceleration, notice of intent to accelerate, protest, or other formalities of
any kind, all of which are hereby expressly waived by the Borrower.
Section 12.3 CASH COLLATERAL. If an Event of Default shall have
occurred and be continuing the Borrower shall, if requested by the Agent or
Required Banks, pledge to the Agent as security for the Obligations an amount
in immediately available funds equal to the then outstanding Letter of Credit
Liabilities, such funds to be held in a cash collateral account at the Agent
without any right of withdrawal by the Borrower.
Section 12.4 PERFORMANCE BY THE AGENT; ADVANCES TO COVER DEBIT
BALANCES IN DEPOSIT ACCOUNTS. If the Borrower shall fail to perform any
covenant or agreement in accordance with the terms of the Loan Documents, the
Agent may, at the direction of Required Banks, perform or attempt to perform
such covenant or agreement on behalf of the Borrower. In such event,
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the Borrower shall, at the request of the Agent, promptly pay any amount
expended by the Agent or the Banks in connection with such performance or
attempted performance to the Agent at the Principal Office, together with
interest thereon at the applicable Default Rate from and including the date of
such expenditure to but excluding the date such expenditure is paid in full.
Notwithstanding the foregoing, it is expressly agreed that neither the Agent
nor any Bank shall have any liability or responsibility for the performance of
any obligation of the Borrower under any Loan Document or any of the other Loan
Documents. Under the terms of each of the Agency Account Agreements entered
into among Agent, the applicable Obligated Party and the applicable financial
institutions who hold deposit accounts pledged as Collateral, Agent is
obligated to transfer to such financial institutions from time to time amounts
sufficient to reimburse such financial institutions for the amount of any
insufficiency in such accounts. In such event, Agent shall notify the Borrower
and the Borrower shall request an advance under the Revolving Loan to pay such
amount on the date expended or promptly pay any amount so expended by Agent to
the Agent at the Principal Office, together with interest at the applicable
Default Rate from and including the date of such expenditure to but excluding
the date that such expenditure is paid in full.
Section 12.5 SETOFF. If an Event of Default shall have occurred
and be continuing, each Bank is hereby authorized at any time and from time to
time, without notice to the Borrower (any such notice being hereby expressly
waived by the Borrower), to set off and apply any and all deposits (general,
time, demand, provisional or final) at any time held and other indebtedness at
any time owing by such Bank to or for the credit or the account of the Borrower
against any and all of the obligations of the Borrower now or hereafter
existing under any Loan Document, irrespective of whether or not the Agent or
such Bank shall have made any demand under such Loan Documents and although
such obligations may be unmatured. Each Bank agrees promptly to notify the
Borrower (with a copy to the Agent) after any such setoff and application,
provided that the failure to give such notice shall not affect the validity of
such setoff and application. The rights and remedies of each Bank hereunder
are in addition to other rights and remedies (including, without limitation,
other rights of setoff) which such Bank may have.
ARTICLE 13
THE AGENT
Section 13.1 APPOINTMENT, POWERS AND IMMUNITIES. Each Bank hereby
appoints and authorizes The First National Bank of Boston to act as its agent
hereunder and under the other Loan Documents with such powers as are
specifically delegated to the Agent by the terms of the Loan Documents,
together with such other powers as are reasonably incidental thereto. Neither
the Agent nor any of its Affiliates, officers, directors, employees, attorneys,
or agents shall be liable for any action taken or omitted to be taken by any of
them hereunder or otherwise in connection with any Loan Document or any of the
other Loan Documents except for its or their own gross negligence or willful
misconduct. Without limiting the generality of the preceding sentence, the
Agent (i) may treat the payee of any Note as the holder thereof until it
receives written notice of the assignment or transfer thereof signed by such
payee and in form satisfactory to the Agent; (ii) shall have no duties or
responsibilities except those expressly set forth in the Loan Documents, and
shall not by reason of any Loan Document be a trustee or fiduciary for any
Bank; (iii) shall not be required to initiate any litigation or collection
proceedings under any
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Loan Document except to the extent requested by Required Banks; (iv) shall not
be responsible to the Banks for any recitals, statements, representations or
warranties contained in any Loan Document, or any certificate or other
documentation referred to or provided for in, or received by any of them under,
any Loan Document, or for the value, validity, effectiveness, enforceability,
or sufficiency of any Loan Document or any other documentation referred to or
provided for therein or for any failure by any Person to perform any of its
obligations thereunder; (v) may consult with legal counsel (including counsel
for the Borrower), independent public accountants, and other experts selected
by it and shall not be liable for any action taken or omitted to be taken in
good faith by it in accordance with the advice of such counsel, accountants, or
experts; and (vi) shall incur no liability under or in respect of any Loan
Document by acting upon any notice, consent, certificate, or other instrument
or writing believed by it to be genuine and signed or sent by the proper party
or parties. As to any matters not expressly provided for by any Loan Document,
the Agent shall in all cases be fully protected in acting, or in refraining
from acting, hereunder in accordance with instructions signed by Required
Banks, and such instructions of Required Banks and any action taken or failure
to act pursuant thereto shall be binding on all of the Banks; PROVIDED,
HOWEVER, that the Agent shall not be required to take any action which exposes
it to personal liability or which is contrary to any Loan Document or
applicable law.
Section 13.2 RIGHTS OF AGENT AS A BANK. With respect to its
Commitment, the Loans made by it and the Note issued to it, The First National
Bank of Boston (and any successor acting as Agent) in its capacity as a Bank
hereunder shall have the same rights and powers hereunder as any other Bank and
may exercise the same as though it were not acting as the Agent, and the term
"Bank" or "Banks" shall, unless the context otherwise indicates, include the
Agent in its individual capacity. The Agent and its Affiliates may (without
having to account therefor to any Bank) accept deposits from, lend money to,
act as trustee under indentures of, provide merchant banking services to, and
generally engage in any kind of banking, trust, or other business with the
Borrower, any of its Subsidiaries, any Obligated Party, and any other Person
who may do business with or own securities of the Borrower, any Subsidiary, or
any Obligated Party, all as if it were not acting as the Agent and without any
duty to account therefor to the Banks.
Section 13.3 DEFAULTS. The Agent shall not be deemed to have
knowledge or notice of the occurrence of a Default (other than the non-payment
of principal of or interest on the Loans or of commitment fees) unless the
Agent has received notice from a Bank or the Borrower specifying such Default
and stating that such notice is a "Notice of Default." In the event that the
Agent receives such a notice of the occurrence of a Default, the Agent shall
give prompt notice thereof to the Banks (and shall give each Bank prompt notice
of each such non-payment). The Agent shall (subject to Section 13.1 hereof)
take such action with respect to such Default as shall be directed by Required
Banks, provided that unless and until the Agent shall have received such
directions, the Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default as it shall seem
advisable and in the best interest of the Banks.
Section 13.4 INDEMNIFICATION. THE BANKS HEREBY AGREE TO INDEMNIFY
THE AGENT FROM AND HOLD THE AGENT HARMLESS AGAINST (TO THE EXTENT NOT
REIMBURSED UNDER SECTIONS 14.1 AND 14.2 HERETO, BUT WITHOUT LIMITING
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THE OBLIGATIONS OF THE BORROWER UNDER SECTIONS 14.1 AND 14.2 HERETO), RATABLY
IN ACCORDANCE WITH THEIR RESPECTIVE COMMITMENT PERCENTAGES, ANY AND ALL
LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS,
DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES), AND
DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON,
INCURRED BY, OR ASSERTED AGAINST THE AGENT IN ANY WAY RELATING TO OR ARISING
OUT OF ANY OF THE LOAN DOCUMENTS OR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY
THE AGENT UNDER OR IN RESPECT OF ANY OF THE LOAN DOCUMENTS; PROVIDED, THAT NO
BANK SHALL BE LIABLE FOR ANY PORTION OF THE FOREGOING TO THE EXTENT CAUSED BY
THE AGENT'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITATION OF THE
FOREGOING, IT IS THE EXPRESS INTENTION OF THE BANKS THAT THE AGENT SHALL BE
INDEMNIFIED HEREUNDER FROM AND HELD HARMLESS AGAINST ALL OF SUCH LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES,
SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES), AND DISBURSEMENTS OF ANY
KIND OR NATURE DIRECTLY OR INDIRECTLY ARISING OUT OF OR RESULTING FROM THE SOLE
OR CONTRIBUTORY NEGLIGENCE OF THE AGENT. WITHOUT LIMITING ANY OTHER PROVISION
OF THIS SECTION, EACH BANK AGREES TO REIMBURSE THE AGENT PROMPTLY UPON DEMAND
FOR ITS PRO RATA SHARE (CALCULATED ON THE BASIS OF THE COMMITMENT PERCENTAGES)
OF ANY AND ALL OUT- OF-POCKET EXPENSES (INCLUDING ATTORNEYS' FEES) INCURRED BY
THE AGENT IN CONNECTION WITH THE PREPARATION, EXECUTION, DELIVERY,
ADMINISTRATION, MODIFICATION, AMENDMENT OR ENFORCEMENT (WHETHER THROUGH
NEGOTIATIONS, LEGAL PROCEEDINGS, OR OTHERWISE) OF, OR LEGAL ADVICE IN RESPECT
OF RIGHTS OR RESPONSIBILITIES UNDER, THE LOAN DOCUMENTS, TO THE EXTENT THAT THE
AGENT IS NOT REIMBURSED FOR SUCH EXPENSES BY THE BORROWER.
Section 13.5 INDEPENDENT CREDIT DECISIONS. Each Bank agrees that
it has independently and without reliance on the Agent or any other Bank, and
based on such documentation and information as it has deemed appropriate, made
its own credit analysis of the Borrower and decision to enter into any Loan
Document and that it will, independently and without reliance upon the Agent or
any other Bank, and based upon such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under any Loan Document. Except as otherwise
specifically set forth herein, the Agent shall not be required to keep itself
informed as to the performance or observance by the Borrower or any Obligated
Party of any Loan Document or to inspect the properties or books of the
Borrower or any Obligated Party. Except for notices, reports and other
documents and information expressly required to be furnished to the Banks by
the Agent hereunder or under the other Loan Documents, the Agent shall not have
any duty or responsibility to provide any Bank with any credit or other
financial information concerning the affairs, financial condition or business
of the Borrower or any Obligated Party (or any of their Affiliates) which may
come into the possession of the Agent or any of its Affiliates.
Section 13.6 SEVERAL COMMITMENTS. The Commitments and other
obligations of the Banks under any Loan Document are several. The default by
any Bank in making a Loan in
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accordance with its Commitment shall not relieve the other Banks of their
obligations under any Loan Document. In the event of any default by any Bank
in making any Loan, each nondefaulting bank shall be obligated to make its Loan
but shall not be obligated to advance the amount which the defaulting Bank was
required to advance hereunder. No Bank shall be responsible for any act or
omission of any other Bank.
Section 13.7 SUCCESSOR AGENT. Subject to the appointment and
acceptance of a successor Agent as provided below, the Agent may resign at any
time by giving notice thereof to the Banks and the Borrower and the Agent may
be removed at any time by Required Banks if it has breached its obligations
under the Loan Documents. Upon any such resignation or removal, Required Banks
will have the right to appoint a successor Agent with the Borrower's consent,
which shall not be unreasonably withheld. If no successor Agent shall have
been so appointed by Required Banks and shall have accepted such appointment
within thirty (30) days after the retiring Agent's giving of notice of
resignation or the Required Banks' removal of the retiring Agent, then the
retiring Agent may, on behalf of the Banks, appoint a successor Agent approved
by the Borrower, which approval will not be unreasonably withheld, which shall
be a commercial bank organized under the laws of the United States of America
or any State thereof and having combined capital and surplus of at least One
Hundred Million Dollars ($100,000,000). Upon the acceptance of its appointment
as successor Agent, such successor Agent shall thereupon succeed to and become
vested with all rights, powers, privileges, immunities, contractual obligation,
and duties of the resigning or removed Agent, including all obligations under
any Letters of Credit, and the resigning or removed Agent shall be discharged
from its duties and obligations under the Loan Documents, including, without
limitation, its obligations under all Letters of Credit. After any Agent's
resignation or removal as Agent, the provisions of this ARTICLE 13 shall
continue in effect for its benefit in respect of any actions taken or omitted
to be taken by it while it was the Agent.
Section 13.8 AGENT FEE. The Borrower agrees to pay to the Agent
on the date hereof and on each anniversary of the date hereof the agent fee
described in that certain proposal letter dated November 15, 1995 prepared by
The First National Bank of Boston to the Borrower.
ARTICLE 14
Miscellaneous
Section 14.1 EXPENSES. The Borrower hereby agrees to pay on
demand: (a) all costs and expenses of the Agent arising in connection with the
preparation, negotiation, execution, and delivery of the Loan Documents
executed and delivered on the Closing Date, the routine "post closing" matters
related thereto, and the initial syndications and assignments by the Agent of
the Loan Documents, including, without limitation, the fees in an amount not to
exceed Sixty Thousand Dollars ($60,000.00) and expenses of legal counsel for
the Agent; (b) all costs and expenses of the Agent arising in connection with
assignments of the Loan Documents, the preparation, negotiation, execution and
delivery of any of the Loan . Documents executed and delivered after the
Closing Date and any and all amendments or other modifications to the Loan
Documents, including, without limitation, the fees and expenses of legal
counsel for the Agent; (c) all fees, costs and expenses of the Agent arising in
connection with any Letter of Credit, including the Agent's customary fees for
amendments, transfers and drawings on Letters of
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Credit; (d) all costs and expenses of the Agent in connection with any Default
and the enforcement of any Loan Document, including, without limitation, the
fees and expenses of legal counsel for the Agent; (e) all fees, costs and
expenses of any Bank (including legal fees and expenses of counsel to any Bank)
arising in connection with an Event of Default under Section 12.1(a) hereof and
the enforcement of any Loan Document during the continuance of such Event of
Default; (f) all transfer, stamp, documentary, or other similar taxes,
assessments, or charges levied by any Governmental Authority in respect of any
Loan Document; (e) all costs, expenses, assessments, and other charges incurred
in connection with any filing, registration, recording, or perfection of any
security interest or Lien contemplated by any Loan Document; and (g) subject to
the limitations set forth in clause (a) above in this SECTION 14.1, all other
costs and expenses incurred by the Agent in connection with any Loan Document,
including, without limitation, all costs, expenses, and other charges incurred
in connection with obtaining any audit or appraisal in respect of the
Collateral.
Section 14.2 INDEMNIFICATION. THE BORROWER SHALL INDEMNIFY THE
AGENT AND EACH BANK AND EACH AFFILIATE THEREOF AND THEIR RESPECTIVE OFFICERS,
DIRECTORS, EMPLOYEES, ATTORNEYS, AND AGENTS FROM, AND HOLD EACH OF THEM
HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES,
JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING ATTORNEYS' FEES) TO
WHICH ANY OF THEM MAY BECOME SUBJECT WHICH DIRECTLY OR INDIRECTLY ARISE FROM OR
RELATE TO (A) ANY BREACH BY THE BORROWER OR ANY OBLIGATED PARTY OF ANY
REPRESENTATION, WARRANTY, COVENANT, OR OTHER AGREEMENT CONTAINED IN ANY OF THE
LOAN DOCUMENTS, (B) THE PRESENCE, RELEASE, THREATENED RELEASE, DISPOSAL,
REMOVAL, OR CLEANUP OF ANY HAZARDOUS MATERIAL LOCATED ON, ABOUT, WITHIN, OR
AFFECTING ANY OF THE PROPERTIES OR ASSETS OF THE BORROWER OR ANY SUBSIDIARY,
(C) THE USE OR PROPOSED USE OF ANY LETTER OF CREDIT OR ANY PAYMENT OR FAILURE
TO PAY WITH RESPECT TO ANY LETTER OF CREDIT, (D) ANY AND ALL TAXES, LEVIES,
DEDUCTIONS, AND CHARGES IMPOSED ON THE AGENT OR ANY BANK IN RESPECT OF ANY
LETTER OF CREDIT, OR (E) ANY INVESTIGATION, LITIGATION, OR OTHER PROCEEDING,
INCLUDING, WITHOUT LIMITATION, ANY THREATENED INVESTIGATION, LITIGATION, OR
OTHER PROCEEDING RELATING TO ANY OF THE FOREGOING, THE LOAN DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED THEREBY; PROVIDED THAT THE PERSON ENTITLED TO BE
INDEMNIFIED UNDER THIS SECTION SHALL NOT BE INDEMNIFIED FROM OR HELD HARMLESS
AGAINST ANY LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS,
DISBURSEMENTS, COSTS OR EXPENSES (INCLUDING ATTORNEYS' FEES) ARISING OUT OF OR
RESULTING FROM ITS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITING
ANY PROVISION OF ANY LOAN DOCUMENT, IT IS THE EXPRESS INTENTION OF THE PARTIES
HERETO THAT EACH PERSON TO BE INDEMNIFIED UNDER THIS SECTION SHALL BE
INDEMNIFIED FROM AND HELD HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES,
CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES
(INCLUDING ATTORNEYS' FEES) ARISING OUT OF OR RESULTING FROM THE SOLE OR
CONTRIBUTORY NEGLIGENCE OF SUCH PERSON.
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Section 14.3 LIMITATION OF LIABILITY. None of the Agent, any
Bank, or any Affiliate, officer, director, employee, attorney, or agent thereof
shall have any liability with respect to, and the Borrower and, by the
execution of the Loan Documents, to which it is a party each Obligated Party,
hereby waives, releases, and agrees not to sue any of them upon, any claim for
any special, indirect, incidental, consequential or punitive damages suffered
or incurred by the Borrower or any Obligated Party in connection with, arising
out of, or in any way related to any of the Loan Documents, or any of the
transactions contemplated by any of the Loan Documents.
Section 14.4 NO DUTY. All attorneys, accountants, appraisers, and
other professional Persons and consultants retained by the Agent or any Bank
shall have the right to act exclusively in the interest of the Agent and the
Banks and shall have no duty of disclosure, duty of loyalty, duty of care, or
other duty or obligation of any type or nature whatsoever to the Borrower or
any of the Borrower's shareholders or any other Person.
Section 14.5 NO FIDUCIARY RELATIONSHIP. The relationship between
the Borrower and the Obligated Parties on the one hand and the Agent and each
Bank on the other is solely that of debtor and creditor, and neither the Agent
nor any Bank has any fiduciary or other special relationship with the Borrower
or any Obligated Parties, and no term or condition of any of the Loan Documents
shall be construed so as to deem the relationship between the Borrower and the
Obligated Parties on the one hand and the Agent and each Bank on the other and
any Bank to be other than that of debtor and creditor.
Section 14.6 EQUITABLE RELIEF. The Borrower recognizes that in
the event the Borrower or any Obligated Party fails to pay, perform, observe,
or discharge any or all of the obligations under the Loan Documents, any remedy
at law may prove to be inadequate relief to the Agent and the Banks. The
Borrower therefore agrees that the Agent and the Banks, if the Agent or the
Required Banks so request, shall be entitled to temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages.
Section 14.7 NO WAIVER; CUMULATIVE REMEDIES. No failure on the
part of the Agent or any Bank to exercise and no delay in exercising, and no
course of dealing with respect to, any right, power, or privilege under any
Loan Document shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power, or privilege under any Loan Document
preclude any other or further exercise thereof or the exercise of any other
right, power, or privilege. The rights and remedies provided for in the Loan
Documents are cumulative and not exclusive of any rights and remedies provided
by law.
Section 14.8 SUCCESSORS AND ASSIGNS.
(a) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
assigns. The Borrower may not assign or transfer any of its rights or
obligations hereunder without the prior written consent of the Agent
and all of the Banks. Any Bank may sell participations to one or more
banks or other institutions in or to all or a portion of its rights
and obligations under the Loan Documents (including, without
limitation, all or a portion of its Commitment, the Loans owing to it
and the Letter of Credit Liabilities which it has made or in which it
has a participating interest); PROVIDED, HOWEVER, that (i) such Bank's
obligations under the Loan
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Documents (including, without limitation, its Commitments) shall
remain unchanged, (ii) such Bank shall remain solely responsible to
the Borrower for the performance of such obligations, (iii) such Bank
shall remain the holder of its Notes and owner of its participation or
other interests in Letter of Credit Liabilities for all purposes of
any Loan Document, (iv) the Borrower shall continue to deal solely and
directly with such Bank in connection with such Bank's rights and
obligations under the Loan Documents, and (v) such Bank shall not sell
a participation that conveys to the participant the right to vote or
give or withhold consents under any Loan Document, other than the
right to vote upon or consent to (1) any increase of such Bank's
Commitments, (2) any reduction of the principal amount of, or interest
to be paid on, the Loans or other Obligations of such Bank, (3) any
reduction of any commitment fee, letter of credit fee, or other amount
payable to such Bank under any Loan Document, or (4) any postponement
of any date for the payment of any amount payable in respect of the
Loans or other Obligations of such Bank.
(b) The Borrower and each of the Banks agree that any
Bank (the "Assigning Bank") may at any time assign to one or more
commercial banks, savings and loan association, savings bank, finance
company, insurance company, pension fund, mutual fund, or other
financial institution (whether a corporation, partnership, or other
entity) (herein an "Eligible Assignee") all, or a proportionate part
of all, of its rights and obligations under the Loan Documents
(including, without limitation, its Commitments and Loans and
participation interests) (each an "Assignee"); PROVIDED, HOWEVER, that
(i) each such assignment shall be of a consistent, and not a varying,
percentage of all of the assigning Bank's rights and obligations under
the Loan Documents, (ii) except in the case of an assignment of all of
a Bank's rights and obligations under the Loan Documents, the amount
of the Commitments of the assigning Bank being assigned or if any
Commitment has terminated, the outstanding principal amount of the
related Loans, pursuant to each assignment (determined as of the date
of the Assignment and Acceptance with respect to such assignment)
shall in no event be less than Five Million Dollars ($5,000,000),
(iii) the parties to each such assignment shall execute and deliver to
the Agent for its acceptance and recording in the Register (as defined
below), an Assignment and Acceptance, together with the Notes subject
to such assignment, and a processing and recordation fee of Three
Thousand Dollars ($3,000) payable by the assignor or assignee (and not
the Borrower); and (iv) the Borrower and the Agent must consent to
such assignment, which consent shall not be unreasonably withheld,
with such consents to be evidenced by the Borrower's and the Agent's
execution of the Assignment and Acceptance. Upon such execution,
delivery, acceptance, and recording, from and after the effective date
specified in each Assignment and Acceptance, which effective date
shall be at least five (5) Business Days after the execution thereof,
or, if so specified in such Assignment and Acceptance, the date of
acceptance thereof by the Agent, (x) the assignee thereunder shall be
a party hereto as a "Bank" and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such
Assignment and Acceptance, have the rights and obligations of a Bank
hereunder and under the Loan Documents and (y) the Bank that is an
assignor thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment and
Acceptance, relinquish its rights and be released from its obligations
under the Loan Documents (and, in the case of an Assignment and
Acceptance covering all or the
CREDIT AGREEMENT - Page 72
<PAGE> 79
remaining portion of a Bank's rights and obligations under the Loan
Documents, such Bank shall cease to be a party thereto).
(c) The Agent shall maintain at its Principal Office a
copy of each Assignment and Acceptance delivered to and accepted by it
and a register for the recordation of the names and addresses of the
Banks and the Commitments of, and principal amount of the Loans owing
to and Letter of Credit Liabilities participated in by, each Bank from
time to time (the "Register"). The entries in the Register shall be
conclusive and binding for all purposes, absent manifest error, and
the Borrower, the Agent, and the Banks may treat each Person whose
name is recorded in the Register as a Bank hereunder for all purposes
under the Loan Documents. The Register shall be available for
inspection by the Borrower or any Bank at any reasonable time and from
time to time upon reasonable prior notice.
(d) Upon its receipt of an Assignment and Acceptance
executed by an Assigning Bank and Assignee representing that it is an
Eligible Assignee, together with any Notes subject to such assignment,
the Agent shall, if such Assignment and Acceptance has been completed
and is in substantially the form of Exhibit "H" hereto, (i) accept
such Assignment and Acceptance, (ii) record the information contained
therein in the Register, and (iii) give prompt written notice thereof
to the Borrower. Within five (5) Business Days after its receipt of
such notice the Borrower, at its expense, shall execute and deliver to
the Agent in exchange for the surrendered Notes new Notes to the order
of such Eligible Assignee in an amount equal to the Commitments or
Loans assumed by it pursuant to such Assignment and Acceptance and, if
the assigning Bank has retained Commitments or Loans, Notes to the
order of the assigning Bank in an amount equal to the Commitments and
Loans retained by it hereunder (each such promissory note shall
constitute a "Note" for purposes of the Loan Documents). Such new
Notes shall be in an aggregate principal amount of the surrendered
Notes, shall be dated the effective date of such Assignment and
Acceptance, and shall otherwise be in substantially the form of
Exhibit "H" hereto.
(e) Any Bank may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this
Section, disclose to the assignee or participant or proposed assignee
or participant, any information relating to the Borrower or its
Subsidiaries furnished to such Bank by or on behalf of the Borrower or
its Subsidiaries.
(f) In connection with the Agent's initial syndication of
the Loans, the Borrower agrees to (i) provide the Agent all
information (including pro forma financial projections), in a form
reasonably acceptable to the Agent, necessary for the preparation of
an information memorandum describing the Borrower and the
Subsidiaries, the Loans and any related transactions and (ii) cause
its management, at the request of the Agent, to be available at
reasonable times and from time to time to meet with potential lenders
and discuss the Borrower, the Subsidiaries, their respective
businesses and the transactions contemplated hereby.
CREDIT AGREEMENT - Page 73
<PAGE> 80
Section 14.9 SURVIVAL. All representations and warranties made in
any Loan Document or in any document, statement, or certificate furnished in
connection with any Loan Document shall survive the execution and delivery of
the Loan Documents and no investigation by the Agent or any Bank or any closing
shall affect the representations and warranties or the right of the Agent or
any Bank to rely upon them. Without prejudice to the survival of any other
obligation of the Borrower hereunder, the obligations of the Borrower under
ARTICLE 6 hereof and SECTIONS 14.1 and 14.2 hereof shall survive repayment of
the Notes and termination of the Commitments and the Letters of Credit.
Section 14.10 ENTIRE AGREEMENT. THIS AGREEMENT, THE NOTES, AND
THE OTHER LOAN DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE AGREEMENT
AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS,
AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL,
RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR
DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
AMONG THE PARTIES THERETO.
Section 14.11 AMENDMENTS. No amendment or waiver of any provision
of any Loan Document to which the Borrower is a party, nor any consent to any
departure by the Borrower therefrom, shall in any event be effective unless the
same shall be agreed or consented to by Required Banks and the Borrower, and
each such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given; provided, that no amendment,
waiver, or consent shall, unless in writing and signed by all of the Banks and
the Borrower, do any of the following: (a) increase Commitments of the Banks;
(b) reduce the principal of, or interest on, the Notes, the Reimbursement
Obligations, or any fees or other amounts payable hereunder; (c) postpone any
date fixed for any payment of principal of, or interest on, the Notes, the
Reimbursement Obligations, or any fees or other amounts payable hereunder; (d)
waive or amend any of the conditions specified in ARTICLE 7 hereof; (e) change
the percentage of the Commitments or of the aggregate unpaid principal amount
of the Notes or the Letter of Credit Liabilities or the number of Banks which
shall be required for the Banks or any of them to take any action under any
Loan Document; (f) change any provision contained in this SECTION 14.11; or (g)
release any Collateral or release the Borrower or any Obligated Party from
liability. Notwithstanding anything to the contrary contained in this Section,
no amendment waiver, or consent shall be made with respect to SECTIONS 2.7 or
ARTICLE 13 hereof without the prior written consent of the Agent.
Section 14.12 MAXIMUM INTEREST RATE.
(a) No interest rate specified in any Loan Document
shall at any time exceed the Maximum Rate. If at any time the
interest rate (the "CONTRACT RATE") for any Obligation shall exceed
the Maximum Rate, thereby causing the interest accruing on such
Obligation to be limited to the Maximum Rate, then any subsequent
reduction in the Contract Rate for such Obligation shall not reduce
the rate of interest on such Obligation below the Maximum Rate until
the aggregate amount of interest accrued on such
CREDIT AGREEMENT - Page 74
<PAGE> 81
Obligation equals the aggregate amount of interest which would have
accrued on such Obligation if the Contract Rate for such Obligation
had at all times been in effect.
(b) No provision of any Loan Document shall require the
payment or the collection of interest in excess of the maximum amount
permitted by applicable law. If any excess of interest in such
respect is hereby provided for, or shall be adjudicated to be so
provided, in any Loan Document or otherwise in connection with this
loan transaction, the provisions of this Section shall govern and
prevail and neither the Borrower nor the sureties, guarantors,
successors, or assigns of the Borrower shall be obligated to pay the
excess amount of such interest or any other excess sum paid for the
use, forbearance, or detention of sums loaned pursuant hereto. In the
event any Bank ever receives, collects, or applies as interest any
such sum, such amount which would be in excess of the maximum amount
permitted by applicable law shall be applied as a payment and
reduction of the principal of the Obligations; and, if the principal
of the Obligations has been paid in full, any remaining excess shall
forthwith be paid to the Borrower. In determining whether or not the
interest paid or payable exceeds the Maximum Rate, the Borrower and
each Bank shall, to the extent permitted by applicable law, (a)
characterize any non-principal payment as an expense, fee, or premium
rather than as interest, (b) exclude voluntary prepayments and the
effects thereof, and (c) amortize, prorate, allocate, and spread in
equal or unequal parts the total amount of interest throughout the
entire contemplated term of the Obligations so that interest for the
entire term does not exceed the Maximum Rate.
Section 14.13 NOTICES. All notices and other communications
provided for in any Loan Document to which the Borrower or any Obligated Party
is a party shall be given or made in writing and telecopied, mailed by
certified mail return receipt requested, or delivered to the intended recipient
at the "Address for Notices" specified below its name on the signature pages
hereof and, if to an Obligated Party, at the address for notices for Borrower;
or, as to any party at such other address as shall be designated by such party
in a notice to each other party given in accordance with this Section. Except
as otherwise provided in any Loan Document, all such communications shall be
deemed to have been duly given when transmitted by telecopy, subject to
telephone confirmation of receipt, or when personally delivered or, in the case
of a mailed notice, three (3) Business Days after being duly deposited in the
mails, in each case given or addressed as aforesaid; provided, however, notices
to the Agent pursuant to SECTION 2.7 or 5.3 hereof shall not be effective until
received by the Agent.
Section 14.14 GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Texas and the
applicable laws of the United States of America.
Section 14.15 COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same agreement.
Section 14.16 SEVERABILITY. Any provision of any Loan Document
held by a court of competent jurisdiction to be invalid or unenforceable shall
not impair or invalidate the remainder
CREDIT AGREEMENT - Page 75
<PAGE> 82
of any Loan Document and the effect thereof shall be confined to the provision
held to be invalid or illegal.
Section 14.17 HEADINGS. The headings, captions, and arrangements
used in this Agreement are for convenience only and shall not affect the
interpretation of this Agreement.
Section 14.18 NON-APPLICATION OF CHAPTER 15 OF TEXAS CREDIT CODE.
The provisions of Chapter 15 of the Texas Credit Code (Vernon's Texas Civil
Statutes, Article 5069-15) are specifically declared by the parties hereto not
to be applicable to any Loan Documents or to the transactions contemplated
thereby.
CREDIT AGREEMENT - Page 76
<PAGE> 83
Section 14.19 CONSTRUCTION. The Borrower, each Obligated Party
(by its execution of the Loan Documents to which its is a party) the Agent and
each Bank acknowledges that each of them has had the benefit of legal counsel
of its own choice and has been afforded an opportunity to review the Loan
Documents with its legal counsel and that the Loan Documents shall be construed
as if jointly drafted by the parties thereto.
Section 14.20 INDEPENDENCE OF COVENANTS. All covenants under the
Loan Documents shall be given independent effect so that if a particular action
or condition is not permitted by any of such covenants, the fact that it would
be permitted by an exception to, or be otherwise within the limitations of,
another covenant shall not avoid the occurrence of a Default if such action is
taken or such condition exists.
Section 14.21 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
EXPRESSLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF
OR RELATING TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
THEREBY OR THE ACTIONS OF THE AGENT OR ANY BANK IN THE NEGOTIATION,
ADMINISTRATION, OR ENFORCEMENT THEREOF.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
SNELLING AND SNELLING, INC.
By: /s/ J. RUSSELL CREWS
-------------------------------------
J. Russell Crews
Senior Vice President
Address for Notices:
12801 N. Central Expressway, Suite 700
Dallas, Texas 75243
Fax No.: (214) 383-3851
Telephone No.: (214) 239-7575
Attention: J. Russell Crews
Chief Financial Officer
CREDIT AGREEMENT - Page 77
<PAGE> 84
Revolving Commitment: THE FIRST NATIONAL BANK OF BOSTON,
individually as a Bank and as the Agent
$15,000,000.00
By: /s/ WILLIAM C. PURINTON
------------------------------------
Name: William C. Purinton
Title: Vice President
Acquisition Commitment: Address for Notices:
$25,000,000.00 100 Federal Street
Mail Stop 01-09-06
Boston, MA 02110
Fax No. 617-434-2309
Telephone No.: 617-434-8856
Attention: William C. Purinton
With a copy to:
115 Perimeter Center Place, N.E.
Suite 500
Atlanta, Georgia 30346
Fax No.: 404-393-6524
Telephone No.: 770-390-6524
Attention: Stephen Y. McGehee
Lending Office for Base Rate
Accounts and Libor Accounts
100 Federal Street
Boston, MA 02110
CREDIT AGREEMENT - Page 78
<PAGE> 1
EXHIBIT 10.14
SECURITY AGREEMENT
(Borrower)
THIS SECURITY AGREEMENT dated as of January 31, 1996 (this
"Agreement"), is by and between SNELLING AND SNELLING, INC., a Pennsylvania
corporation (the "Debtor") and THE FIRST NATIONAL BANK OF BOSTON, as agent for
itself and the other Banks (as defined in the hereafter defined Credit
Agreement) (the "Secured Party").
R E C I T A L S:
A. The Debtor, the banks named therein, and the Secured Party
have entered into that certain Credit Agreement of even date herewith (such
Credit Agreement, as the same may be amended or otherwise modified from time to
time, being hereinafter referred to as the "Credit Agreement"; terms defined in
the Credit Agreement and not otherwise defined herein are used herein as
defined therein).
B. The Secured Party and the Banks have conditioned their
obligations under the Credit Agreement upon the execution and delivery of this
Agreement by the Debtor.
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1 DEFINITIONS. As used in this Agreement, the
following terms have the following meanings:
"ACCOUNT" means any "account", as such term is defined in
Section 9.106 of the UCC, whether now owned or hereafter acquired by
the Debtor, and, in any event, shall include, without limitation, each
of the following, whether now owned or hereafter acquired by the
Debtor: (a) all rights of the Debtor to payment for goods sold or
leased or services rendered, whether or not earned by performance; (b)
all accounts receivable of the Debtor; (c) all rights of the Debtor to
receive any payment of money or other form of consideration,
including, without limitation, all rights to receive payments under
franchise agreements (including the rights to any override commission,
franchise fees or license fees payable thereunder and excluding the
rights to any cooperative advertising fees to be deposited into the
Promotion Fund) and any agreements creating Paybill Arrangements; (d)
all security pledged, assigned, or granted to or held by the Debtor to
secure any of the foregoing; (e) all letters of credit securing,
guaranties of, or indemnifications with respect to, any of the
foregoing; and (f) all rights of the Debtor as an unpaid seller of
goods or services, including, but not limited to, all rights of
stoppage in transit, replevin, reclamation and resale.
SECURITY AGREEMENT - Page 1
<PAGE> 2
"CHATTEL PAPER" means any "chattel paper", as such term is
defined in Section 9.105(a)(2) of the UCC.
"COLLATERAL" has the meaning specified in SECTION 2.1 of this
Agreement.
"COPYRIGHT LICENSE" means any written agreement now or
hereafter in existence granting to the Debtor any right to use any
Copyright.
"COPYRIGHTS" means all of the following: (a) all copyrights,
works protectable by copyright, copyright registrations and copyright
applications of the Debtor; (b) all renewals, extensions and
modifications thereof; (c) all income, royalties, damages, profits and
payments relating to or payable under any of the foregoing; (d) the
right to sue for past, present or future infringements of any of the
foregoing; (e) all other rights and benefits relating to any of the
foregoing throughout the world; and (f) all goodwill associated with
and symbolized by any of the foregoing; in each case, whether now
owned or hereafter acquired by the Debtor.
"COPYRIGHT SECURITY AGREEMENT" means the copyright security
agreement to be executed and delivered by the Debtor to the Secured
Party, substantially in the form of Exhibit "A" hereto, as such
agreement may hereafter be amended, supplemented, or otherwise
modified from time to time.
"DOCUMENT" means any "document", as such term is defined in
Section 9.105(a)(6) of the UCC, including, without limitation, all
documents of title and all receipts covering, evidencing or
representing goods.
"EQUIPMENT" means any "equipment", as such term is defined in
Section 9.109(2) of the UCC, now owned or hereafter acquired by the
Debtor and, in any event, shall include, without limitation, all
machinery, equipment, furniture, fixtures, trade fixtures, trailers,
rolling stock, vessels, aircraft, and vehicles now owned or hereafter
acquired by the Debtor and any and all additions, substitutions, and
replacements of any of the foregoing, wherever located, together with
all attachments, components, parts, equipment, and accessories
installed thereon or affixed thereto.
"FINANCIAL ASSET" means any "financial asset" as such term is
defined in Section 8.102 (a) of the UCC.
"GENERAL INTANGIBLES" means any "general intangibles", as such
term is defined in Section 9.106 of the UCC, whether now owned or
hereafter acquired by the Debtor and, in any event, shall include,
without limitation, each of the following, whether now owned or
hereafter acquired by the Debtor: (a) all of the Debtor's Intellectual
Property and all other service marks, trade names, trade secrets,
registrations, goodwill, franchises, licenses, permits, proprietary
information, customer lists, designs and inventions; (b) all of the
Debtor's books, records, data, plans, manuals, computer software,
computer tapes, computer disks, computer programs, source codes,
object codes and all rights of the Debtor to retrieve data and other
information from third parties; (c) all of the Debtor's contract
rights, including, without limitation, all rights
SECURITY AGREEMENT - Page 2
<PAGE> 3
arising under franchise agreements and other agreements creating
Paybill Arrangements and all Lockbox Agreements; (d) all rights of the
Debtor to payment under letters of credit and similar agreements; (e)
all tax refunds and tax refund claims of the Debtor; (f) all causes in
action and causes of action of the Debtor (whether arising in
contract, tort, or otherwise and whether or not currently in
litigation) and all judgments in favor of the Debtor; (g) all rights
and claims of the Debtor under warranties and indemnities; and (h) all
rights of the Debtor under any insurance, surety, or similar contract
or arrangement.
"INSTRUMENT" means any "instrument", as such term is defined
in Section 9.105(a)(9) of the UCC, and, in any event, shall include
all promissory notes, drafts, bills of exchange and trade acceptances
of the Debtor.
"INTELLECTUAL PROPERTY" means the Copyrights, Copyright
Licenses, Patents, Patent Licenses, Trademarks and Trademark Licenses.
"INVENTORY" means any "inventory", as such term is defined in
Section 9.109(4) of the UCC, whether now owned or hereafter acquired
by the Debtor, and, in any event, shall include, without limitation,
each of the following, whether now owned or hereafter acquired by the
Debtor: (a) all goods and other personal property of the Debtor that
are held for sale or lease or to be furnished under any contract of
service; (b) all raw materials, work-in-process, finished goods,
inventory, supplies and materials of the Debtor; (c) all wrapping,
packaging, advertising and shipping materials of the Debtor; (d) all
goods that have been returned to, repossessed by, or stopped in
transit by the Debtor; and (e) all Documents evidencing ownership of
any inventory.
"INVESTMENT PROPERTY" means any "investment property" as such
term is defined in Section 9.115(a)(b) of the UCC.
"IP SECURITY AGREEMENT" means the Patent Security Agreement,
the Copyright Security Agreement or the Trademark Security Agreement.
"PATENT LICENSES" means any written agreement now or hereafter
in existence granting to the Debtor any right to use any invention on
which a Patent is in existence including, without limitation, the
agreements described on SCHEDULE 3 hereto.
"PATENTS" means all of the following: (a) all patents, patent
applications and patentable inventions of the Debtor, including
without limitation, those set forth on SCHEDULE 3 hereto, and all of
the inventions and improvements described and claimed therein; (b) all
continuations, divisions, renewals, extensions, modifications,
substitutions, continuations-in-part, or reissues of any of the
foregoing; (c) all income, royalties, profits, damages, awards and
payments relating to or payable under any of the foregoing; (d) the
right to sue for past, present and future infringements of any of the
foregoing; (e) all other rights and benefits relating to any of the
foregoing throughout the world; and (f) all goodwill associated with
any of the foregoing; in each case, whether now owned or hereafter
acquired by the Debtor.
SECURITY AGREEMENT - Page 3
<PAGE> 4
"PATENT SECURITY AGREEMENT" means the patent security
agreement to be executed and delivered by the Debtor to the Secured
Party, substantially in the form of EXHIBIT "B" hereto, as such
agreement may hereafter be amended, supplemented, or otherwise
modified from time to time.
"PROCEEDS" means any "proceeds", as such term is defined in
Section 9.306 of the UCC and, in any event, shall include, but not be
limited to: (a) any and all proceeds of any insurance, indemnity,
warranty, or guaranty payable to the Debtor from time to time with
respect to any of the Collateral; (b) any and all payments (in any
form whatsoever) made or due and payable to the Debtor from time to
time in connection with any requisition, confiscation, condemnation,
seizure, or forfeiture of all or any part of the Collateral by any
Governmental Authority (or any Person acting under color of
Governmental Authority); (c) all Instruments, Documents, Chattel Paper
and General Intangibles received or arising in connection with a
disposition of the Collateral; and (d) any and all other amounts from
time to time paid or payable under or in connection with any of the
Collateral.
"PROMOTION FUND" means all funds held by Debtor or its
Subsidiaries which represent cooperative advertising fees paid by
Franchisees.
"TRADEMARK LICENSE" means any written agreement now or
hereafter in existence granting to the Debtor any right to use any
Trademark including, without limitation, the agreements identified on
SCHEDULE 3 hereto.
"TRADEMARKS" means all of the following: (a) all trademarks,
trade names, corporate names, company names, business names,
fictitious business names, trade styles, service marks, logos, other
business identifiers, prints and labels on which any of the foregoing
have appeared or appear, all registrations and recordings thereof and
all applications in connection therewith including registrations,
recordings and applications in the United States Patent and Trademark
Office or in any similar office or agency of the United States, any
state thereof, or any other country or any political subdivision
thereof, including, without limitation, those described in SCHEDULE 3
hereof; (b) all reissues, extensions and renewals thereof; (c) all
income, royalties, damages and payments now or hereafter relating to
or payable under any of the foregoing including damages or payments
for past or future infringements of any of the foregoing; (d) the
right to sue for past, present and future infringements of any of the
foregoing; (e) all rights corresponding to any of the foregoing
throughout the world; and (f) all goodwill associated with and
symbolized by any of the foregoing; in each case, whether now owned or
hereafter acquired by the Debtor.
"TRADEMARK SECURITY AGREEMENT" means the trademark security
agreement to be executed and delivered by the Debtor to the Secured
Party, substantially in the form of Exhibit "C" hereto, as such
agreement may hereafter be amended, supplemented, or otherwise
modified from time to time.
"UCC" means the Uniform Commercial Code as in effect in the
State of Texas; PROVIDED, that if by mandatory provisions of law, the
perfection or effect of perfection
SECURITY AGREEMENT - Page 4
<PAGE> 5
or non-perfection of the security interest created hereunder in any
Collateral is governed by the Uniform Commercial Code as in effect on
or after the date hereof in any other jurisdiction, "UCC" means the
Uniform Commercial Code as in effect in such other jurisdiction for
purposes of the provision hereof relating to such perfection or the
effect of perfection or non-perfection.
Section 1.2 OTHER DEFINITIONAL PROVISIONS. References to
"Sections", "subsections", "Exhibits" and "Schedules" shall be to Sections,
subsections, Exhibits and Schedules, respectively, of this Agreement unless
otherwise specifically provided. All definitions contained in this Agreement
are equally applicable to the singular and plural forms of the terms defined.
All references to statutes and regulations shall include any amendments of the
same and any successor statutes and regulations. Terms used herein, which are
defined in the UCC, unless otherwise defined herein or in the Credit Agreement,
shall have the meanings as set forth in the UCC.
ARTICLE 2
SECURITY INTEREST
Section 2.1 SECURITY INTEREST. As collateral security for the
prompt payment and performance in full when due of the Obligations (whether at
stated maturity, by acceleration, or otherwise), the Debtor hereby collaterally
assigns to Secured Party, and grants to the Secured Party a security interest
in, all of the Debtor's right, title and interest in and to the following,
whether now owned or hereafter arising or acquired and wherever located
(collectively, the "Collateral"):
(a) all Accounts;
(b) all Chattel Paper;
(c) all deposit accounts (including disbursement, lockbox, and
concentration accounts but excluding the Promotion Fund) of
Debtor maintained with Agent or any bank, all cash deposited
therein from time to time and other monies and property of
Debtor in the possession or under the control of Agent or any
bank;
(d) all Documents;
(e) all Equipment;
(f) all General Intangibles;
(g) all Instruments;
(h) all Inventory;
(i) all Financial Assets and any other Investment Property; and
SECURITY AGREEMENT - Page 5
<PAGE> 6
(j) all Proceeds and products of any or all of the foregoing.
Section 2.2 DEBTOR REMAINS LIABLE. Notwithstanding anything to
the contrary contained herein, (a) the Debtor shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the
Secured Party of any of its rights hereunder shall not release the Debtor from
any of its duties or obligations under the contracts and agreements included in
the Collateral and (c) the Secured Party shall not have any obligation or
liability under any of the contracts and agreements included in the Collateral
by reason of this Agreement, nor shall the Secured Party be obligated to
perform any of the obligations or duties of the Debtor thereunder or to take
any action to collect or enforce any claim for payment assigned hereunder.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
To induce the Secured Party to enter into this Agreement and the
Credit Agreement, the Debtor represents and warrants to the Secured Party and
the Banks that:
Section 3.1 ACCOUNTS. Unless the Debtor has given the Secured
Party written notice to the contrary, whenever the security interest granted
hereunder attaches to an Eligible Account, the Debtor shall be deemed to have
represented and warranted to the Secured Party as to each of such Accounts that
(a) each such Account is genuine and in all respects what it purports to be,
(b) each such Account represents the legal, valid and binding obligation of the
account debtor evidencing indebtedness unpaid and owed by such account debtor,
(c) the amount of each such Account represented as owing is the correct amount
actually and unconditionally owing except for normal trade discounts granted
and contra accounts, in each case, arising in the ordinary course of business
and (d) no Account is subject to any offset, counterclaim, or other defense.
Section 3.2 FINANCING STATEMENTS. No financing statement,
security agreement or other Lien instrument covering all or any part of the
Collateral is on file in any public office, except as may have been filed in
favor of the Secured Party pursuant to this Agreement or as permitted under the
Credit Agreement. The Debtor does not do business and has not done business
within the past five (5) years under a trade name or any name other than (a)
the name set forth at the beginning of this Agreement which is its exact name
as set forth in its certificate of incorporation and (b) the names set forth on
SCHEDULE 1 hereto.
Section 3.3 PRINCIPAL PLACE OF BUSINESS. The principal place of
business and chief executive office of the Debtor, and the office where the
Debtor keeps its books and records, is located at the "Address for Notices" for
Debtor set forth in the Credit Agreement.
Section 3.4 LOCATION OF COLLATERAL. SCHEDULE 1 attached hereto
sets forth all locations where the Debtor maintains Collateral (except certain
computer Equipment which constitutes Collateral and is held by Franchisee in
the ordinary course of Debtor's business) and all other locations where the
Debtor has a place of business. The Debtor does not carry on any business
SECURITY AGREEMENT - Page 6
<PAGE> 7
in any location other than as set forth on SCHEDULE 1. SCHEDULE 1 correctly
identifies the landlords or mortgagees, if any, of the locations described
thereon. No Persons have possession of any of the Collateral except Debtor,
Secured Party, Franchisees who hold computer equipment owned by Debtor in the
ordinary course of Debtor's business, the financial institutions and brokerage
company described on SCHEDULE 1.1(a) to the Credit Agreement or except as
otherwise reflected on SCHEDULE 1. No Collateral other than computer Equipment
owned by Debtor and held by Franchisees has been located in any state or county
other than as disclosed on SCHEDULE 1 within the last four (4) months from the
date hereof. None of the Inventory or Equipment of the Debtor is evidenced by a
Document (including, without limitation, a negotiable document of title). All
Instruments, Documents, letters of credit and Chattel Paper which constitute
Collateral of the Debtor have been delivered to the Secured Party except as
permitted by SECTION 4.6 hereto. All certificates of title evidencing
Equipment have been delivered to Secured Party except as permitted by SECTION
9.10 of the Credit Agreement. The book value of all fixtures of Debtor at any
location does not exceed Ten Thousand Dollars ($10,000) per location. The book
value of all computer Equipment of Debtor held by any one Franchisee does not
exceed Seven Thousand Five Hundred Dollars ($7,500.00) per Franchisee. The
aggregate book value of all Equipment of Debtor and each Granting Subsidiary
evidenced by certificates of title does not exceed One Hundred Thousand Dollars
($100,000.00).
Section 3.5 PERFECTION. Upon the filing of Uniform Commercial
Code financing statements in the jurisdictions listed on SCHEDULE 2 attached
hereto, the filing of the Patent Security Agreement and the Trademark Security
Agreement with the United States Patent and Trademark Office, the filing of the
Copyright Security Agreement with the United States Copyright Office and upon
the Secured Party's obtaining possession of all Instruments, Documents and
Chattel Paper pledged hereunder, the security interest in favor of the Secured
Party created herein will constitute a valid and perfected Lien upon and
security interest in the Collateral, (excluding Collateral which constitutes
fixtures and as otherwise provided in SECTION 9.10 of the Credit Agreement)
subject to no equal or prior Liens other than Liens permitted by the Credit
Agreement.
Section 3.6 INTELLECTUAL PROPERTY.
(a) All of the Intellectual Property is subsisting, valid
and enforceable. The information contained on SCHEDULE 3 hereto is true,
correct and complete. All Intellectual Property of the Debtor is identified on
SCHEDULE 3 hereto.
(b) The Debtor is the sole and exclusive owner of the
entire and unencumbered right, title and interest in and to the Intellectual
Property, except for licenses granted by Debtor to Franchisees from time to
time, in the ordinary course of business, free and clear of any Liens other
than Liens permitted by the Credit Agreement, including, without limitation,
any pledges, assignments, licenses, user agreements and covenants by the Debtor
not to sue third Persons.
(c) No claim has been made that the use by Debtor of any
of the Intellectual Property violates or may violate the rights of any third
Person.
(d) Each of the Patents and Trademarks identified on
SCHEDULE 3 hereto has been properly registered with the United States Patent
and Trademark Office and each of the
SECURITY AGREEMENT - Page 7
<PAGE> 8
Copyrights identified on SCHEDULE 3 hereto has been properly registered with
the United States Copyright Office.
ARTICLE 4
COVENANTS
The Debtor covenants and agrees with the Secured Party that until the
Obligations are paid and performed in full and all Commitments of the Banks and
the Secured Party to the Debtor have terminated:
Section 4.1 MODIFICATION OF COLLATERAL. Without the prior
written consent of the Secured Party or unless the same is subsequently
properly reported on the Borrowing Base Report next due following such event,
the Debtor shall not (a) grant any extension of time for any payment with
respect to any of the Collateral, (b) compromise, compound, or settle any of
the Collateral for less than the full amount thereof, (c) release, in whole or
in part, any Person liable for payment with respect to the Collateral, (d)
allow any credit or discount for payment with respect to the Collateral, or (e)
release any Lien or guaranty securing the Collateral, or otherwise amend or
modify any of the Collateral.
Section 4.2 BAILEES. If any of the Collateral is at any time in
the possession or control of any warehouseman, bailee, any of the Debtor's
agents or processors or any other third Person (excluding computer Equipment
held by Franchisees in the ordinary course of Debtor's business and excluding
Collateral held in the deposit and brokerage accounts that are not Lockbox
Accounts), the Debtor shall notify such warehouseman, bailee, agent, processor
or third Person of the security interest created hereunder, shall instruct such
Person to hold such Collateral for the Secured Party's account subject to the
Secured Party's instructions and shall take all actions deemed necessary or
desirable by Secured Party to protect and perfect its security interest in the
Collateral such Person is to hold with the priority required by the Loan
Documents. After the occurrence of a Default and when otherwise required
pursuant to Section 9.10 of the Credit Agreement, upon Secured Party's request
Debtor shall notify each Franchisee in possession of computer Equipment and
each financial institution or broker who holds an account of the type described
in the preceding sentence of the security interest created hereunder, shall
instruct each such Person to hold the Collateral it holds for Secured Party's
account subject to the Secured Party's instructions and shall take all actions
deemed necessary or desirable by Secured Party to protect and perfect its
security interest in such Collateral with the priority required by the Loan
Documents.
Section 4.3 MORTGAGEE AND LANDLORD WAIVERS. Upon Secured Party's
request which can be made at any time and from time to time after a Default,
the Debtor shall cause each mortgagee of real property owned by the Debtor and
each landlord of real property leased by the Debtor to execute and deliver
instruments satisfactory in form and substance to the Secured Party by which
such mortgagee or landlord waives its rights, if any, in the Collateral.
Section 4.4 CORPORATE CHANGES. The Debtor shall not change its
name, identity, or corporate structure in any manner that might make any
financing statement filed in connection with this Agreement seriously
misleading unless the Debtor shall have given the Secured Party
SECURITY AGREEMENT - Page 8
<PAGE> 9
thirty (30) days prior written notice thereof and shall have taken all action
deemed necessary or desirable by the Secured Party to make each financing
statement not seriously misleading. The Debtor shall not change its principal
place of business, chief executive office, or the place where it keeps its
books and records unless it shall have given the Secured Party thirty (30) days
prior written notice thereof and shall have taken all action deemed necessary
or desirable by the Secured Party to cause its security interest in the
Collateral to be perfected with the priority required by the Loan Documents.
Section 4.5 EQUIPMENT AND INVENTORY. The Debtor shall keep all
Equipment and Inventory at the locations specified on Schedule 1 hereto or,
with respect to computer Equipment held by Franchisees in the ordinary course
of Debtor's business, with the Franchisees or, upon thirty (30) days prior
written notice to the Secured Party, at such other places within the United
States of America where all action required to perfect the Secured Party's
security interest in the Equipment and Inventory with the priority required by
the Loan Documents shall have been taken. The Debtor shall maintain the
Equipment and Inventory in good condition and repair (ordinary wear and tear
excepted). The Debtor shall not permit any waste or destruction of the
Equipment and Inventory or any part thereof. The Debtor shall not permit the
Equipment and Inventory to be used in violation of any law, rule, or regulation
or inconsistently with the terms of any policy of insurance. The Debtor shall
not use or permit any of the Equipment and Inventory to be used in any manner
or for any purpose that would impair its value or expose it to unusual risk.
Section 4.6 COLLECTIONS ON ACCOUNTS; DELIVERY OF COLLATERAL. In
connection with the collections on Accounts, the Debtor, at the Secured Party's
direction, shall take such actions as the Secured Party may deem necessary or
advisable to enforce collections on the Accounts. Except as otherwise provided
in this Agreement, the Debtor shall have the right to receive Instruments,
letters of credit, and Chattel Paper included in the Collateral, to receive and
further negotiate in the ordinary course of business all Documents (including,
without limitation, documents of title) evidencing Inventory, and to receive,
retain and draw under, in the ordinary course of business, all letters of
credit included in the Collateral, but the Debtor shall promptly deliver all
other Collateral (the possession of which is necessary to perfect the security
interest therein) and all Proceeds to the Secured Party. If an Event of
Default shall have occurred and be continuing, the Debtor shall, upon the
request of the Secured Party, deliver all Instruments, letters of credit,
Chattel Paper, and Documents constituting Collateral to the Secured Party. The
Debtor shall deliver to the Secured Party all certificates of title evidencing
the title to Collateral hereafter acquired, except as otherwise provided by the
terms of SECTION 9.10 of the Credit Agreement.
Section 4.7 LOCKBOX OF PROCEEDS. The Debtor shall instruct all
customers and other Persons obligated with respect to all Accounts and other
Collateral to make all payments with respect thereto, except for obligations to
make payments to the Promotion Fund, to a post office box or boxes in
accordance with the terms of the Lockbox Agreements to which Debtor is a party.
Debtor shall irrevocably instruct each depository bank who has entered into a
Lockbox Agreement with it to remit all proceeds of such payments (except to the
extent such proceeds are for cooperative advertising fees paid by Franchisees,
in which case such proceeds shall be segregated and remitted to the Promotion
Fund) directly to Agent on a daily basis by automated clearing house debit
directly for credit to the Concentration Account or by wire transfer to Agent
SECURITY AGREEMENT - Page 9
<PAGE> 10
for direct application to the Obligations in accordance with the Credit
Agreement. Any income received by the Secured Party with respect to the
balance from time to time standing to the credit of the Concentration Account
shall remain, or be deposited, in the Concentration Account. In addition to
the foregoing, the Debtor agrees that if any Proceeds (including, without
limitation, the payments made in respect of Accounts) shall be received by it,
the Debtor shall as promptly as possible deposit such Proceeds into the
Concentration Account. Until so deposited, all such Proceeds shall be held in
trust by the Debtor for the benefit of the Secured Party and shall be
segregated from any other funds or property of the Debtor.
Section 4.8 DEPOSIT AND BROKERAGE ACCOUNTS. Debtor shall not
amend or modify any Lockbox Agreement. Debtor shall not open any new deposit
or brokerage account or otherwise utilize any deposit or brokerage account
other than the Contribution Account, the Disbursement Account and the other
deposits or brokerage accounts disclosed on SCHEDULE 1.1(a) of the Credit
Agreement unless Debtor shall have given the Secured Party thirty (30) days
prior written notice thereof and shall have taken all action deemed necessary
or desirable by the Secured Party to cause its security interest therein to be
perfected (subject to the provisions of Section 9.10(a)(iv) of the Credit
Agreement) with priority required by the Loan Documents. Prior to the
occurrence and continuance of an Event of Default, the Debtor may make
purchases and sales of Investment Property in its brokerage account in
accordance with the restrictions on investment set out in the Credit Agreement
but after the occurrance and during the continuance of an Event of Default the
Debtor shall not be authorized to make purchases and sales of the Investment
Property held therein. At no time shall Debtor withdraw any funds or
Investment Property from its brokerage account unless such funds or the
proceeds of the Investment Property so withdrawn are immediately applied by the
Debtor to the Obligations or deposited in the Concentration Account.
Section 4.9 INTELLECTUAL PROPERTY.
(a) The Debtor shall prosecute diligently all
applications in respect of Intellectual Property, now or hereafter pending.
(b) The Debtor shall make federal applications on all of
its unpatented but patentable inventions and all of its registrable but
unregistered Copyrights and Trademarks if, in any such case, of any value.
(c) The Debtor shall preserve and maintain all of its
rights in the Intellectual Property as necessary to operate its business and
shall protect the Intellectual Property from infringement, unfair competition,
cancellation, or dilution by all appropriate action, including the commencement
and prosecution of legal proceedings to recover damages for infringement, as
necessary to operate its business and to defend and preserve its rights in the
Intellectual Property as necessary to operate its business.
(d) The Debtor shall not abandon any of the Intellectual
Property necessary in the conduct of its business.
(e) The Debtor shall not sell or assign any of its
interest in, or grant any license under (except as permitted by SECTION 5.3
hereof and except for the license of Intellectual Property to Franchisees in
the ordinary course of business), any of the Intellectual Property
SECURITY AGREEMENT - Page 10
<PAGE> 11
without the prior written consent of the Secured Party and shall maintain the
quality of any and all products and services with respect to which the
Intellectual Property is used. The Debtor shall not enter into any agreement,
including, but not limited to any licensing agreement, that is or may be
inconsistent with the Debtor's obligations under this Agreement or any of the
other Loan Documents.
(f) If the Debtor shall obtain rights to or become
entitled to the benefit of any Intellectual Property not identified on Schedule
3 hereto, the Debtor shall give the Secured Party prompt written notice thereof
and the provisions of this Agreement shall automatically apply thereto and the
Debtor hereby authorizes the Secured Party to modify or update SCHEDULE 3
hereto and the schedule to the applicable IP Security Agreement to include any
new Intellectual Property.
(g) Upon the occurrence of any event that would require
any addition to or modification of SCHEDULE 3 hereto or upon the request of the
Secured Party, the Debtor shall furnish to the Secured Party statements and
schedules further identifying the Intellectual Property and such other rights
in connection with the Intellectual Property as the Secured Party may request.
Promptly upon the request of the Secured Party, the Debtor shall modify this
Agreement by amending SCHEDULE 3 hereto and the schedule to the applicable IP
Security Agreement to include any Intellectual Property that becomes part of
the Collateral or to the extent not already executed, shall execute the
applicable IP Security Agreement to cover such Intellectual Property.
(h) If an Event of Default shall have occurred and be
continuing, the Debtor shall use its best efforts to obtain any consents,
waivers, or agreements necessary to enable the Secured Party to exercise its
rights and remedies with respect to the Intellectual Property.
(i) The Debtor shall concurrently herewith and upon the
occurrence of the events described in clauses (f) or (g) of this Section 4.8,
execute and deliver to the Secured Party, as applicable, the Copyright Security
Agreement, the Patent Security Agreement and the Trademark Security Agreement,
any required modifications thereto and all other documents, instruments and
other items as may be necessary for the Secured Party to file such agreements
with the United States Copyright Office, the United States Patent and Trademark
Office and any similar domestic or foreign office, department, or agency.
ARTICLE 5
RIGHTS OF THE SECURED PARTY
Section 5.1 POWER OF ATTORNEY. THE DEBTOR HEREBY IRREVOCABLY
CONSTITUTES AND APPOINTS THE SECURED PARTY AND ANY OFFICER OR AGENT THEREOF,
WITH FULL POWER OF SUBSTITUTION, AS ITS TRUE AND LAWFUL ATTORNEY-IN-FACT WITH
FULL IRREVOCABLE POWER AND AUTHORITY IN THE NAME OF THE DEBTOR OR IN ITS OWN
NAME, TO TAKE AFTER THE OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF
DEFAULT, ANY AND ALL ACTION AND TO EXECUTE ANY AND ALL DOCUMENTS AND
INSTRUMENTS WHICH THE SECURED PARTY AT ANY TIME AND FROM TIME TO
SECURITY AGREEMENT - Page 11
<PAGE> 12
TIME DEEMS NECESSARY OR DESIRABLE TO ACCOMPLISH THE PURPOSES OF THIS AGREEMENT
AND, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE DEBTOR HEREBY GIVES
THE SECURED PARTY THE POWER AND RIGHT ON BEHALF OF THE DEBTOR AND IN ITS OWN
NAME TO DO ANY OF THE FOLLOWING AFTER THE OCCURRENCE AND DURING THE CONTINUANCE
OF AN EVENT OF DEFAULT, WITHOUT NOTICE TO OR THE CONSENT OF THE DEBTOR:
(i) to demand, sue for, collect, or
receive in the name of the Debtor or in its own name, any money or property at
any time payable or receivable on account of or in exchange for any of the
Collateral and, in connection therewith, endorse checks, notes, drafts,
acceptances, money orders, documents of title, or any other instruments for the
payment of money under the Collateral or any policy of insurance;
(ii) to pay or discharge taxes, Liens, or
other encumbrances levied or placed on or threatened against the Collateral;
(iii) to send requests for verification to
account debtors and other obligors;
(iv) to notify post office authorities to
change the address for delivery of mail of the Debtor to an address designated
by the Secured Party and to receive, open and dispose of mail addressed to the
Debtor; and
(v) (A) to direct account debtors and
any other parties liable for any payment under any of the Collateral to make
payment of any and all monies due and to become due thereunder directly to the
Secured Party or as the Secured Party shall direct; (B) to receive payment of
and receipt for any and all monies, claims and other amounts due and to become
due at any time in respect of or arising out of any Collateral; (C) to sign and
endorse any invoices, freight or express bills, bills of lading, storage or
warehouse receipts, drafts against debtors, assignments, proxies, stock powers,
verifications and notices in connection with accounts and other documents
relating to the Collateral; (D) to commence and prosecute any suit, action, or
proceeding at law or in equity in any court of competent jurisdiction to
collect the Collateral or any part thereof and to enforce any other right in
respect of any Collateral; (E) to defend any suit, action, or proceeding
brought against the Debtor with respect to any Collateral; (F) to settle,
compromise, or adjust any suit, action, or proceeding described above and, in
connection therewith, to give such discharges or releases as the Secured Party
may deem appropriate; (G) to exchange any of the Collateral for other property
upon any merger, consolidation, reorganization, recapitalization, or other
readjustment of the issuer thereof and, in connection therewith, deposit any of
the Collateral with any committee, depositary, transfer agent, registrar, or
other designated agency upon such terms as the Secured Party may determine; (H)
to add or release any guarantor, indorser, surety, or other party to any of the
Collateral; (I) to renew, extend, or otherwise change the terms and conditions
of any of the Collateral; (J) to grant or issue any exclusive or nonexclusive
license under or with respect to any of the Intellectual Property; (K) to
endorse the Debtor's name on all applications, documents, papers and
instruments necessary or desirable in order for the Secured Party to use any of
the Intellectual Property; (L) to make, settle, compromise, or adjust any
claims under or pertaining to any of the Collateral (including claims under any
policy of insurance); and (M) to
SECURITY AGREEMENT - Page 12
<PAGE> 13
sell, transfer, pledge, convey, make any agreement with respect to or otherwise
deal with any of the Collateral as fully and completely as though the Secured
Party were the absolute owner thereof for all purposes, and to do, at the
Secured Party's option and the Debtor's expense, at any time, or from time to
time, all acts and things which the Secured Party deems necessary to protect,
preserve, maintain, or realize upon the Collateral and the Secured Party's
security interest therein.
THIS POWER OF ATTORNEY IS A POWER COUPLED WITH AN INTEREST AND SHALL
BE IRREVOCABLE UNTIL ALL OF THE OBLIGATIONS ARE PAID IN FULL. The Secured
Party shall be under no duty to exercise or withhold the exercise of any of the
rights, powers, privileges and options expressly or implicitly granted to the
Secured Party in this Agreement, and the Secured Party shall not be liable for
any failure to do so or any delay in doing so. Neither the Secured Party nor
any Person designated by the Secured Party shall be liable for any act or
omission or for any error of judgment or any mistake of fact or law. This
power of attorney is conferred on the Secured Party solely to protect,
preserve, maintain and realize upon its security interest in the Collateral.
The Secured Party shall not be responsible for any decline in the value of the
Collateral and shall not be required to take any steps to preserve rights
against prior parties or to protect, preserve, or maintain any Lien given to
secure the Collateral.
Section 5.2 ASSIGNMENT BY THE SECURED PARTY. Subject to the
terms of the Credit Agreement, the Secured Party may at any time assign or
otherwise transfer all or any portion of its rights and obligations under the
Loan Documents (including, without limitation, the Obligations) to any other
Person, and such Person shall thereupon become vested with all the benefits
thereof granted to the Secured Party herein or otherwise.
Section 5.3 LICENSE. If no Event of Default shall have
occurred and be continuing, the Debtor shall have the exclusive,
non-transferrable right and license to use the Intellectual Property in the
ordinary course of business and the exclusive right to grant to other Persons
licenses and sublicenses with respect to the Intellectual Property.
ARTICLE 6
Default
Section 6.1 RIGHTS AND REMEDIES. If an Event of Default
shall have occurred and be continuing, the Secured Party shall have the
following rights and remedies:
(a) In addition to all other rights and remedies
granted to the Secured Party in this Agreement or in any other Loan Document or
by applicable law, the Secured Party shall have all of the rights and remedies
of a secured party under the UCC (whether or not the UCC applies to the
affected Collateral). Without limiting the generality of the foregoing, the
Secured Party may (i) without demand or notice to the Debtor, collect, receive,
or take possession of the Collateral or any part thereof and for that purpose
the Secured Party may enter upon any premises on which the Collateral is
located and remove the Collateral therefrom or render it inoperable and/or (ii)
sell, lease, or otherwise dispose of the Collateral, or any part thereof, in
one or more parcels at public or private sale or sales, at the Secured Party's
offices
SECURITY AGREEMENT - Page 13
<PAGE> 14
or elsewhere, for cash, on credit or for future delivery, and upon such other
terms as the Secured Party may deem commercially reasonable. The Secured Party
shall have the right at any public sale or sales, and, to the extent permitted
by applicable law, at any private sale or sales, to bid (which bid may be, in
whole or in part, in the form of cancellation of indebtedness) and become a
purchaser of the Collateral or any part thereof free of any right or equity of
redemption on the part of the Debtor, which right or equity of redemption is
hereby expressly waived and released by the Debtor. Upon the request of the
Secured Party, the Debtor shall assemble the Collateral and make it available
to the Secured Party at any place designated by the Secured Party that is
reasonably convenient to the Debtor and the Secured Party. The Debtor agrees
that the Secured Party shall not be obligated to give more than ten (10) days
written notice of the time and place of any public sale or of the time after
which any private sale may take place and that such notice shall constitute
reasonable notice of such matters. The Secured Party shall not be obligated to
make any sale of Collateral if it shall determine not to do so, regardless of
the fact that notice of sale of Collateral may have been given. The Secured
Party may, without notice or publication, adjourn any public or private sale or
cause the same to be adjourned from time to time by announcement at the time
and place fixed for sale, and such sale may, without further notice, be made at
the time and place to which the same was so adjourned. The Debtor shall be
liable for all expenses of retaking, holding, preparing for sale, or the like,
and all attorneys' fees, legal expenses and other costs and expenses incurred
by the Secured Party in connection with the collection of the Obligations and
the enforcement of the Secured Party's rights under this Agreement. The Debtor
shall remain liable for any deficiency if the Proceeds of any sale or other
disposition of the Collateral are insufficient to pay the Obligations in full.
The Secured Party may apply the Collateral against the Obligations in such
order and manner as the Secured Party may elect in its sole discretion. The
Debtor waives all rights of marshaling, valuation and appraisal in respect of
the Collateral.
(b) The Secured Party may cause any or all of the
Collateral held by it to be transferred into the name of the Secured Party or
the name or names of the Secured Party's nominee or nominees.
(c) The Secured Party may exercise any and all
rights and remedies of the Debtor under or in respect of the Collateral,
including, without limitation, any and all rights of the Debtor to demand or
otherwise require payment of any amount under, or performance of any provision
of, any of the Collateral and any and all voting rights and corporate powers in
respect of the Collateral.
(d) The Secured Party may collect or receive all
money or property at any time payable or receivable on account of or in
exchange for any of the Collateral, but shall be under no obligation to do so.
(e) On any sale of the Collateral, the Secured
Party is hereby authorized to comply with any limitation or restriction with
which compliance is necessary, in the view of the Secured Party's counsel, in
order to avoid any violation of applicable law or in order to obtain any
required approval of the purchaser or purchasers by any applicable Governmental
Authority.
SECURITY AGREEMENT - Page 14
<PAGE> 15
(f) For purposes of enabling the Secured Party to
exercise its rights and remedies under this SECTION 6.1 and enabling the
Secured Party and its successors and assigns to enjoy the full benefits of the
Collateral, the Debtor hereby grants to the Secured Party an irrevocable,
nonexclusive license (exercisable without payment of royalty or other
compensation to the Debtor) to use, assign, license, or sublicense any of the
Intellectual Property, including in such license reasonable access to all media
in which any of the licensed items may be recorded or stored and all computer
programs used for the completion or printout thereof. This license shall also
inure to the benefit of all successors, assigns and transferees of the Secured
Party.
(g) The Secured Party may require that the Debtor
assign all of its right, title and interest in and to the Intellectual Property
or any part thereof to the Secured Party or such other Person as the Secured
Party may designate pursuant to documents satisfactory to the Secured Party.
ARTICLE 7
Miscellaneous
Section 7.1 SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of the Debtor and the Secured Party and
their respective heirs, successors and assigns, except that the Debtor may not
assign any of its rights or obligations under this Agreement without the prior
written consent of the Secured Party and the Banks.
Section 7.2 AMENDMENT; ENTIRE AGREEMENT. THIS AGREEMENT EMBODIES
THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDES ANY AND ALL
PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER
WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE
CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG THE PARTIES HERETO. The provisions of this Agreement may be
amended or waived only by an instrument in writing signed by the parties
hereto.
Section 7.3 NOTICES. All notices and other communications
provided for in this Agreement shall be given in accordance with the notice
provisions set forth in the Credit Agreement.
Section 7.4 GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Texas and the
applicable laws of the United States of America.
Section 7.5 HEADINGS. The headings, captions and arrangements
used in this Agreement are for convenience only and shall not affect the
interpretation of this Agreement.
SECURITY AGREEMENT - Page 15
<PAGE> 16
Section 7.6 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 7.7 WAIVER OF BOND. In the event the Secured Party seeks
to take possession of any or all of the Collateral by judicial process, the
Debtor hereby irrevocably waives any bonds and any surety or security relating
thereto that may be required by applicable law as an incident to such
possession, and waives any demand for possession prior to the commencement of
any such suit or action.
Section 7.8 SEVERABILITY. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this
Agreement, and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction.
Section 7.9 TERMINATION. If all of the Obligations shall have
been paid and performed in full and all Commitments of the Banks to the Debtor
shall have expired or terminated, the Secured Party shall, upon the written
request of the Debtor, execute and deliver to the Debtor a proper instrument or
instruments acknowledging the release and termination of the security interests
created by this Agreement, and the Secured Party shall duly assign and deliver
to the Debtor (without recourse and without any representation or warranty)
such of the Collateral as may be in the possession of the Secured Party and has
not previously been sold or otherwise applied pursuant to this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first written above.
DEBTOR:
SNELLING AND SNELLING, INC.
By: /s/ J. RUSSELL CREWS
-------------------------------------
Name: J. Russell Crews
Title: Senior Vice President
SECURED PARTY:
THE FIRST NATIONAL BANK OF BOSTON, as
agent
By: /s/ WILLIAM C. PURINTON
-------------------------------------
Name: William C. Purinton
Title: Vice President
SECURITY AGREEMENT - Page 16
<PAGE> 1
EXHIBIT 10.15
COPYRIGHT SECURITY AGREEMENT
WHEREAS, SNELLING AND SNELLING, INC., a Pennsylvania corporation
("Grantor"), owns the Copyright registrations and Copyright applications listed
on Schedule 1 annexed hereto and is a party to the Copyright Licenses listed on
Schedule 1 annexed hereto; and
WHEREAS, Grantor, the lenders named therein ("Banks") and The First
National Bank of Boston, as agent for Banks ("Secured Party") are parties to
that certain Credit Agreement dated as of January 31, 1996 (as the same may be
amended and in effect from time to time, the "Credit Agreement"), providing for
extensions of credit to be made to Grantor by Secured Party and the other
Banks; and
WHEREAS, pursuant to the terms of the Borrower Security Agreement
dated as of January 31, 1996 (as said Agreement may be amended and in effect
from time to time, the "Security Agreement"), between Grantor and Secured
Party, Grantor has granted to Secured Party a security interest in certain
assets of Grantor including all right, title and interest of Grantor in, to and
under all now owned and hereafter acquired Copyrights (as defined in the
Security Agreement), Copyright registrations, Copyright applications and
Copyright Licenses (as defined in the Security Agreement), together with the
goodwill of the business symbolized by Grantor's Copyrights and all proceeds
thereof, to secure the payment of all Obligations (as such term is defined in
the Credit Agreement);
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantor does hereby grant to
Secured Party a continuing security interest in all of Grantor's right, title
and interest in, to and under the following (all of the following items or
types of property being herein collectively referred to as the "Copyright
Collateral"), whether presently existing or hereafter created or acquired:
(1) each Copyright, Copyright application and Copyright
registration, together with any reissues, extensions or renewals
thereof, including, without limitation, the Copyrights, Copyright
registrations and Copyright applications referred to in Schedule 1
annexed hereto, and all of the goodwill of the business connected with
the use of, and symbolized by, each Copyright, Copyright registration
and Copyright application;
(2) each Copyright License and all of the goodwill of the
business connected with the use of, and symbolized by, each Copyright
License, including, without limitation, each Copyright License
referred to in Schedule 1 annexed hereto; and
(3) all products and proceeds of the foregoing,
including, without limitation, any claim by Grantor against third
parties for past, present or future (a) infringement or dilution of
any Copyright or Copyright registration including, without limitation,
the Copyright and Copyright registrations referred to in Schedule 1
annexed hereto, the
COPYRIGHT SECURITY AGREEMENT - Page 1
<PAGE> 2
Copyright registrations issued with respect to the Copyright
applications referred in Schedule 1 and the Copyrights licensed under
the Copyright Licenses, or (b) injury to the goodwill associated with
any Copyright, Copyright registration or Copyright licensed under any
Copyright License.
This security interest is granted in conjunction with the security interests
granted to Secured Party pursuant to the Security Agreement. Grantor hereby
acknowledges and affirms that the rights and remedies of Secured Party with
respect to the security interest in the Copyright Collateral made and granted
hereby are more fully set forth in the Security Agreement, the terms and
provisions of which are incorporated by reference herein as if fully set forth
herein.
IN WITNESS WHEREOF, Grantor has caused this Copyright Security
Agreement to be duly executed by its duly authorized officer as of the 31st day
of January 1996.
Acknowledged:
GRANTOR: SECURED PARTY:
SNELLING AND SNELLING, INC. THE FIRST NATIONAL BANK OF BOSTON,
as Agent
By: /s/ J. RUSSELL CREWS By: /s/ WILLIAM C. PURINTON
------------------------------- --------------------------------------
Name: J. Russell Crews Name: William C. Purinton
----------------------------- ------------------------------------
Title: Senior Vice President Title: Vice President
---------------------------- -----------------------------------
COPYRIGHT SECURITY AGREEMENT - Page 2
<PAGE> 3
ACKNOWLEDGMENT
STATE OF TEXAS
------------------------- )
)
COUNTY OF DALLAS )
------------------------
On the 31st day of January, 1996 before me personally appeared J.
Russell Crews, to me personally known or proved to me on the basis of
satisfactory evidence to be the person described in and who executed the
foregoing instrument as Senior Vice President of Snelling and Snelling, Inc.
who being by me duly sworn, did depose and say that he is Senior Vice President
of Snelling and Snelling, Inc., the corporation described in and which executed
the foregoing instrument; that he knows the seal of said corporation; that the
seal affixed to said instrument is such corporate seal; that the said
instrument was signed and sealed on behalf of said corporation by order of its
Board of Directors; that he signed his name thereto by like order; and that he
acknowledged said instrument to be the free act and deed of said corporation.
/s/ GREGORY J. HAUSDORF
----------------------------------------
{Seal} Notary Public
My commission expires: 06/29/96
ACKNOWLEDGMENT
STATE OF MASSACHUSETTS
------------------------- )
)
COUNTY OF SUFFOLK )
------------------------
On the 30th day of January, 1996 before me personally appeared William
C. Purinton, to me personally known or proved to me on the basis of
satisfactory evidence to be the person described in and who executed the
foregoing instrument as Vice President of The First National Bank of Boston who
being by me duly sworn, did depose and say that he is Vice President of The
First National Bank of Boston, the corporation described in and which executed
the foregoing instrument; that he knows the seal of said corporation; that the
seal affixed to said instrument is such corporate seal; that the said
instrument was signed and sealed on behalf of said corporation by order of its
Board of Directors; that he signed his name thereto by like order; and that he
acknowledged said instrument to be the free act and deed of said corporation.
JOAN BAIRD
----------------------------------------
{Seal} Notary Public
My commission expires: June 18, 1999
COPYRIGHT SECURITY AGREEMENT - Page 3
<PAGE> 1
EXHIBIT 10.16
TRADEMARK SECURITY AGREEMENT
WHEREAS, SNELLING AND SNELLING, INC., a Pennsylvania corporation
("Grantor"), owns the Trademarks, Trademark registrations and Trademark
applications listed on Schedule 1 annexed hereto and is a party to the
Trademark Licenses listed on Schedule 1 annexed hereto; and
WHEREAS, Grantor, the lenders named therein ("Banks") and The First
National Bank of Boston, as agent for Banks ("Secured Party") are parties to a
Credit Agreement of even date herewith (as same may be amended and in effect
from time to time, the "Credit Agreement"), providing for extensions of credit
to be made to Grantor by Secured Party and the other Banks; and
WHEREAS, pursuant to the terms of the Borrower Security Agreement of
even date herewith (as said Agreement may be amended and in effect from time to
time, the "Security Agreement"), between Grantor and Secured Party, Grantor has
granted to Secured Party a security interest in certain assets of Grantor
including all right, title and interest of Grantor in, to and under all now
owned and hereafter acquired Trademarks (as defined in the Security Agreement),
Trademark registrations, Trademark applications and Trademark Licenses (as
defined in the Security Agreement), together with the goodwill of the business
symbolized by Grantor's Trademarks, and all proceeds thereof, to secure the
payment of all Obligations (as such term is defined in the Credit Agreement);
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantor does hereby grant to
Secured Party a continuing security interest in all of Grantor's right, title
and interest in, to and under the following (all of the following items or
types of property being herein collectively referred to as the "Trademark
Collateral"), whether presently existing or hereafter created or acquired:
(1) each Trademark, Trademark registration and Trademark
application, including, without limitation, the Trademarks, Trademark
registrations (together with any reissues, continuations or extensions
thereof) and Trademark applications referred to in Schedule 1 annexed
hereto, and all of the goodwill of the business connected with the use
of, and symbolized by, each Trademark, Trademark registration and
Trademark application;
(2) each Trademark License and all of the goodwill of the
business connected with the use of, and symbolized by, each Trademark
License, including, without limitation, each Trademark License
referred to in Schedule 1 annexed hereto; and
(3) all products and proceeds of the foregoing,
including, without limitation, any claim by Grantor against third
parties for past, present or future (a) infringement or dilution of
any Trademark or Trademark registration including, without limitation,
the Trademarks and Trademark registrations referred to in Schedule 1
annexed hereto, the
TRADEMARK SECURITY AGREEMENT - Page 1
<PAGE> 2
Trademark registrations issued with respect to the Trademark
applications referred in Schedule 1 and the Trademarks licensed under
any Trademark License, or (b) injury to the goodwill associated with
any Trademark, Trademark registration or Trademark licensed under any
Trademark License.
This security interest is granted in conjunction with the security interests
granted to Secured Party pursuant to the Security Agreement. Grantor hereby
acknowledges and affirms that the rights and remedies of Secured Party with
respect to the security interest in the Trademark Collateral made and granted
hereby are more fully set forth in the Security Agreement, the terms and
provisions of which are incorporated by reference herein as if fully set forth
herein.
IN WITNESS WHEREOF, Grantor has caused this Trademark Security
Agreement to be duly executed by its duly authorized officer thereunto as of
the 31st day of January 1996.
Acknowledged:
GRANTOR: SECURED PARTY:
SNELLING AND SNELLING, INC. THE FIRST NATIONAL BANK OF BOSTON,
as Agent
By: /s/ J. RUSSELL CREWS By: WILLIAM C. PURINTON
------------------------------- -------------------------------------
Name: J. Russell Crews Name: William C. Purinton
----------------------------- -----------------------------------
Title: Senior Vice President Title: Vice President
---------------------------- ----------------------------------
TRADEMARK SECURITY AGREEMENT - Page 2
<PAGE> 3
ACKNOWLEDGMENT
STATE OF TEXAS
------------------------- )
)
COUNTY OF DALLAS )
------------------------
On the 31st day of January, 1996 before me personally appeared
___________________, to me personally known or proved to me on the basis of
satisfactory evidence to be the person described in and who executed the
foregoing instrument as Senior Vice President of Snelling and Snelling, Inc.
who being by me duly sworn, did depose and say that he is the Senior Vice
President of Snelling and Snelling, Inc., the corporation described in and
which executed the foregoing instrument; that the said instrument was signed on
behalf of said corporation by order of its Board of Directors; that he signed
his name thereto by like order; and that he acknowledged said instrument to be
the free act and deed of said corporation.
/s/ GREGORY J. HAUSDORF
-----------------------------------------
{Seal} Notary Public
My commission expires: 6-29-96
ACKNOWLEDGMENT
STATE OF MASSACHUSETTS )
)
COUNTY OF SUFFOLK )
----------------
On the 30th day of January, 1996 before me personally appeared William
C. Purinton, to me personally known or proved to me on the basis of
satisfactory evidence to be the person described in and who executed the
foregoing instrument as the _____________ of The First National Bank of Boston,
who being by me duly sworn, did depose and say that he is the of The First
National Bank of Boston, the bank described in and which executed the foregoing
instrument; that the said instrument was signed on behalf of said bank; that he
signed his name thereto by like order; and that he acknowledged said instrument
to be the free act and deed of said bank.
/s/ JOAN BAIRD
-----------------------------------------
{Seal} Notary Public
My commission expires: June 18, 1999
TRADEMARK SECURITY AGREEMENT - Page 3
<PAGE> 1
EXHIBIT 10.17
BORROWER PLEDGE AGREEMENT
THIS BORROWER PLEDGE AGREEMENT dated as of January 31, 1996 (this
"Agreement"), is by and between SNELLING AND SNELLING, INC., a Pennsylvania
corporation ("Pledgor") and THE FIRST NATIONAL BANK OF BOSTON, as agent for
itself and the other Banks (the "Secured Party").
RECITALS:
0.10 Pledgor, certain lenders named therein ("Banks") and Secured
Party have entered into that certain Credit Agreement of even date herewith
(such Credit Agreement, as the same may be amended or otherwise modified from
time to time, being hereinafter referred to as the "Credit Agreement"; terms
defined in the Credit Agreement and not otherwise defined herein being used as
defined therein).
0.11 Secured Party and the Banks have conditioned their obligations
under the Credit Agreement upon the execution and delivery of this Agreement by
Pledgor.
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 1
Security Interest and Pledge
Section 1.1 SECURITY INTEREST AND PLEDGE. As collateral security
for the prompt payment in full when due of the Obligations (whether at stated
maturity, by acceleration, or otherwise) and all present and future obligations
of Pledgor under this Agreement, Pledgor hereby pledges and grants to Secured
Party a first priority security interest in the following property (such
property being hereinafter sometimes called the "Collateral"):
(a) all of Pledgor's shares of stock of the companies
described on SCHEDULE 1 hereto, now owned or hereafter acquired,
including, without limitation, the shares of stock of such companies
described on SCHEDULE 1 hereto; and
(b) all products, proceeds, revenues, distributions,
dividends, stock dividends, securities and other property, rights and
interests that Pledgor receives or is at any time entitled to receive
on account of the same.
BORROWER PLEDGE AGREEMENT - Page 1
<PAGE> 2
ARTICLE 2
AFFIRMATIVE AND NEGATIVE COVENANTS
Pledgor covenants and agrees with Secured Party that:
Section 2.1 DELIVERY. Prior to or concurrently with the execution
and delivery of this Agreement, Pledgor shall deliver to Secured Party all
certificate(s) identified in Schedule 1 hereto, accompanied by undated stock
powers duly executed in blank.
Section 2.2 ENCUMBRANCES. Pledgor shall not create, permit, or
suffer to exist, and shall defend the Collateral against, any Lien, security
interest, or other encumbrance on the Collateral except the pledge and security
interest of Secured Party hereunder, and Pledgor shall defend Pledgor's rights
in the Collateral and Secured Party's security interest in the Collateral
against the claims of all Persons.
Section 2.3 SALE OF COLLATERAL. Pledgor shall not sell, assign, or
otherwise dispose of the Collateral or any part thereof without the prior
written consent of Secured Party or as permitted pursuant to SECTION 10.8 of
the Credit Agreement.
Section 2.4 DISTRIBUTIONS. If Pledgor shall become entitled to
receive or shall receive: (i) any stock certificate (including, without
limitation, any certificate representing a stock dividend or a distribution in
connection with any reclassification, increase, or reduction of capital or
issued in connection with any reorganization), option or rights, whether as an
addition to, in substitution of, or in exchange for any Collateral; (ii) any
sums paid in respect of the Collateral upon the liquidation or dissolution of
the issuer thereof; (iii) any other distribution of capital made on or in
respect of the Collateral or any other property distributed upon or in respect
of the Collateral pursuant to any recapitalization or reclassification of the
capital of the issuer thereof or pursuant to any reorganization of the issuer
thereof; or (iv) subject to the right of Pledgor to receive cash dividends
under SECTION 3.3 hereof, any other Collateral the possession of which is
necessary to perfect the security interest of Secured Party therein, then (1)
Pledgor agrees to accept the same as Secured Party's agent and to hold the same
in trust for Secured Party, and to deliver the same forthwith to Secured Party
in the exact form received, with the appropriate endorsement of Pledgor when
necessary and/or appropriate undated stock powers duly executed in blank, to be
held by Secured Party as additional Collateral for the Obligations, subject to
the terms hereof, or (2) in the case of a disposition of the stock or assets of
PMC as permitted by SECTION 10.8 of the Credit Agreement, Pledgor may use the
proceeds as permitted by SECTION 10.8 of the Credit Agreement. All sums of
money and property so paid or distributed in respect of the Collateral that are
received by Pledgor shall, until paid or delivered to Secured Party, be held by
Pledgor in trust as additional security for the Obligations.
BORROWER PLEDGE AGREEMENT - Page 2
<PAGE> 3
ARTICLE 3
RIGHTS OF SECURED PARTY AND PLEDGOR
Section 3.1 POWER OF ATTORNEY. PLEDGOR HEREBY IRREVOCABLY
CONSTITUTES AND APPOINTS SECURED PARTY AND ANY OFFICER OR AGENT THEREOF, WITH
FULL POWER OF SUBSTITUTION, AS ITS TRUE AND LAWFUL ATTORNEY-IN-FACT WITH FULL
IRREVOCABLE POWER AND AUTHORITY IN THE PLACE AND STEAD AND IN THE NAME OF
PLEDGOR OR IN ITS OWN NAME, IN SECURED PARTY'S DISCRETION, TO TAKE, AFTER THE
OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT, ANY AND ALL
ACTION AND TO EXECUTE ANY AND ALL DOCUMENTS AND INSTRUMENTS WHICH MAY BE
NECESSARY OR DESIRABLE TO ACCOMPLISH THE PURPOSES OF THIS AGREEMENT AND,
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, HEREBY GIVES SECURED PARTY
THE POWER AND RIGHT ON BEHALF OF PLEDGOR AND IN ITS OWN NAME TO DO, AFTER THE
OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT, ANY OF THE
FOLLOWING (SUBJECT TO THE RIGHTS OF PLEDGOR UNDER SECTION 3.2 AND 3.3 HEREOF)
WITHOUT NOTICE TO OR THE CONSENT OF PLEDGOR:
(a) to demand, sue for, collect, or receive in the name of
Pledgor or in its own name, any money or property at any time payable
or receivable on account of or in exchange for any of the Collateral
and, in connection therewith, endorse checks, notes, drafts,
acceptances, money orders, or any other instruments for the payment
of money under the Collateral;
(b) to pay or discharge taxes, Liens, security interests,
or other encumbrances levied or placed on or threatened against the
Collateral;
(c) (i) to direct account debtors and any other parties
liable for any payment under any of the Collateral to make payment of
any and all monies due and to become due thereunder directly to
Secured Party or as Secured Party shall direct; (ii) to receive
payment of and receipt for any and all monies, claims, and other
amounts due and to become due at any time in respect of or arising out
of any Collateral; (iii) to sign and endorse any drafts, assignments,
proxies, stock powers, verifications, notices, and other documents
relating to the Collateral; (iv) to commence and prosecute any suit,
actions or proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral or any part thereof and to
enforce any other right in respect of any Collateral; (v) to defend
any suit, action, or proceeding brought against Pledgor with respect
to any Collateral; (vi) to settle, compromise, or adjust any suit,
action, or proceeding described above and, in connection therewith, to
give such discharges or releases as Secured Party may deem
appropriate; (vii) to exchange any of the Collateral for other
property upon any merger, consolidation, reorganization,
recapitalization, or other readjustment of the
BORROWER PLEDGE AGREEMENT - Page 3
<PAGE> 4
issuer thereof and, in connection therewith, deposit any of the
Collateral with any committee, depositary, transfer agent, registrar,
or other designated agency upon such terms as Secured Party may
determine; (viii) to add or release any guarantor, indorser, surety,
or other party to any of the Collateral or the Obligations; (ix) to
renew, extend, or otherwise change the terms and conditions of any of
the Collateral or Obligations; and (x) to sell, transfer, pledge, make
any agreement with respect to or otherwise deal with any of the
Collateral as fully and completely as though Secured Party were the
absolute owner thereof for all purposes, and to do, at Secured Party's
option and Pledgor's expense, at any time, or from time to time, all
acts and things which Secured Party deems necessary to protect,
preserve, or realize upon the Collateral and Secured Party's security
interest therein.
THIS POWER OF ATTORNEY IS A POWER COUPLED WITH AN INTEREST AND SHALL
BE IRREVOCABLE UNTIL ALL OF THE OBLIGATIONS ARE PAID IN FULL. Secured Party
shall be under no duty to exercise or withhold the exercise of any of the
rights, powers, privileges and options expressly or implicitly granted to
Secured Party in this Agreement, and Secured Party shall not be liable for any
failure to do so or any delay in doing so. Secured Party shall not be liable
for any act or omission or for any error of judgment or any mistake of fact or
law in its individual capacity or in its capacity as attorney-in-fact except
acts or omissions resulting from its willful misconduct. This power of
attorney is conferred on Secured Party solely to protect, preserve and realize
upon its security interest in the Collateral.
Section 3.2 VOTING RIGHTS. Unless and until an Event of Default
shall have occurred and is continuing, Pledgor shall be entitled to exercise
any and all voting rights pertaining to the Collateral or any part thereof for
any purpose not inconsistent with the terms of this Agreement or the Credit
Agreement. Secured Party shall execute and deliver to the Pledgor all such
proxies and other instruments as Pledgor may reasonably request for the purpose
of enabling Pledgor to exercise the voting rights which it is entitled to
exercise pursuant to this Section.
Section 3.3 DIVIDENDS. Unless and until an Event of Default shall
have occurred and is continuing, Pledgor shall be entitled to receive and
retain any dividends on the Collateral paid in cash out of earned surplus to
the extent and only to the extent that such dividends are permitted by the
Credit Agreement.
Section 3.4 SECURED PARTY'S DUTY OF CARE. Other than the exercise
of reasonable care in the physical custody of the Collateral while held by
Secured Party hereunder, Secured Party shall have no responsibility for or
obligation or duty with respect to all or any part of the Collateral or any
matter or proceeding arising out of or relating thereto, including, without
limitation, any obligation or duty to collect any sums due in respect thereof
or to protect or preserve any rights against prior parties or any other rights
pertaining thereto, it being understood and agreed that Pledgor shall be
responsible for preservation of all rights in the Collateral. Without limiting
the generality of the foregoing, Secured Party shall be conclusively deemed to
have exercised reasonable care in the custody of the Collateral if Secured
Party takes
BORROWER PLEDGE AGREEMENT - Page 4
<PAGE> 5
such action, for purposes of preserving rights in the Collateral, as Pledgor
may reasonably request in writing, but no failure or omission or delay by
Secured Party in complying with any such request by Pledgor, and no refusal by
Secured Party to comply with any such request by Pledgor, shall be deemed to be
a failure to exercise reasonable care unless such failure, omission, delay or
refusal constitutes willful misconduct or gross negligence.
Section 3.5 ASSIGNMENT BY SECURED PARTY. Subject to the terms of
the Credit Agreement, Secured Party may at any time and from time to time
assign the Obligations and any portion thereof and/or the Collateral and any
portion thereof, and the assignee shall be entitled to all of the rights and
remedies of Secured Party under this Agreement in relation thereto.
ARTICLE 4
DEFAULT
Section 4.1 RIGHTS AND REMEDIES. If any Event of Default shall
occur and be continuing, Secured Party shall have the following rights and
remedies:
(a) In addition to all other rights and remedies granted to
Secured Party in this Agreement and in any other instrument or
agreement securing, evidencing, or relating to the Obligations,
Secured Party shall have all of the rights and remedies of a secured
party under the Uniform Commercial Code as adopted by the State of
Texas. Without limiting the generality of the foregoing, Secured
Party may (i) without demand or notice to Pledgor, collect, receive,
or take possession of the Collateral or any part thereof, (ii) sell or
otherwise dispose of the Collateral, or any part thereof, in one or
more parcels at public or private sale or sales, at Secured Party's
offices or elsewhere, for cash, on credit, or for future delivery
and/or (iii) bid and become a purchaser at any sale free of any right
or equity of redemption in Pledgor, which right or equity is hereby
expressly waived and released by Pledgor. Upon the request of Secured
Party, Pledgor shall assemble the Collateral and make it available to
Secured Party at any place designated by Secured Party that is
reasonably convenient to Pledgor and Secured Party. Pledgor agrees
that Secured Party shall not be obligated to give more than ten (10)
days written notice of the time and place of any public sale or of the
time after which any private sale may take place and that such notice
shall constitute reasonable notice of such matters. Secured Party
shall not be obligated to make any sale of the Collateral regardless
of notice of sale having been given. Secured Party may adjourn any
public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned. Pledgor
shall be liable for all expenses of retaking, holding, preparing for
sale, or the like, and all attorneys' fees and other expenses incurred
by Secured Party in connection with the collection of the Obligations
and the enforcement of Secured Party's rights under this Agreement,
all of which expenses and fees shall constitute additional Obligations
secured by this Agreement. Secured Party may apply the Collateral
against the
BORROWER PLEDGE AGREEMENT - Page 5
<PAGE> 6
Obligations in accordance with the Credit Agreement. Pledgor shall
remain liable for any deficiency if the proceeds of any sale or
disposition of the Collateral are insufficient to pay the Obligations.
Pledgor waives all rights of marshalling in respect of the Collateral.
(b) Secured Party may cause any or all of the Collateral
held by it to be transferred into the name of Secured Party or the
name or names of Secured Party's nominee or nominees.
(c) Secured Party may collect or receive all money or
property at any time payable or receivable on account of or in
exchange for any of the Collateral, but shall be under no obligation
to do so.
(d) Secured Party shall have the right, but shall not be
obligated to, exercise or cause to be exercised all voting, consensual
and other powers of ownership pertaining to the Collateral, and
Pledgor shall deliver to Secured Party, if requested by Secured Party,
irrevocable proxies with respect to the Collateral in form
satisfactory to Secured Party.
(e) Pledgor hereby acknowledges and confirms that Secured
Party may be unable to effect a public sale of any or all of the
Collateral by reason of certain prohibitions contained in the
Securities Act of 1933, as amended, and applicable state securities
laws and may be compelled to resort to one or more private sales
thereof to a restricted group of purchasers who will be obligated to
agree, among other things, to acquire any shares of the Collateral for
their own respective accounts for investment and not with a view to
distribution or resale thereof. Pledgor further acknowledges and
confirms that any such private sale may result in prices or other
terms less favorable to the seller than if such sale were a public
sale and, notwithstanding such circumstances, agrees that any such
private sale shall be deemed to have been made in a commercially
reasonable manner, and Secured Party shall be under no obligation to
take any steps in order to permit the Collateral to be sold at a
public sale. Secured Party shall be under no obligation to delay a
sale of any of the Collateral for any period of time necessary to
permit any issuer thereof to register such Collateral for public sale
under the Securities Act of 1933, as amended, or under applicable
state securities laws.
(f) On any sale of the Collateral, Secured Party is hereby
authorized to comply with any limitation or restriction with which
compliance is necessary, in the view of Secured Party's counsel, in
order to avoid any violation of applicable law or in order to obtain
any required approval of the purchaser or purchasers by any
applicable governmental authority.
BORROWER PLEDGE AGREEMENT - Page 6
<PAGE> 7
ARTICLE 5
MISCELLANEOUS
Section 5.1 SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of Pledgor and Secured Party and their
respective heirs, successors and assigns, except that Pledgor may not assign
any of its rights or obligations under this Agreement without the prior written
consent of Secured Party. Any assignment made in violation of this SECTION 5.1
shall be void.
Section 5.2 AMENDMENT; ENTIRE AGREEMENT. THIS AGREEMENT EMBODIES
THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDES ANY AND ALL
PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER
WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE
CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS
AMONG THE PARTIES HERETO. The provisions of this Agreement may be amended or
waived only by an instrument in writing signed by the parties hereto.
Section 5.3 NOTICES. All notices and other communications provided
for in this Agreement shall be given or made in accordance with the Credit
Agreement.
Section 5.4 APPLICABLE LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Texas and the
applicable laws of the United States of America.
Section 5.5 HEADINGS. The headings, captions and arrangements used
in this Agreement are for convenience only and shall not affect the
interpretation of this Agreement.
Section 5.6 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
BORROWER PLEDGE AGREEMENT - Page 7
<PAGE> 8
Section 5.7 SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Agreement, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first written above.
PLEDGOR:
SNELLING AND SNELLING, INC.
By: /s/ J. RUSSELL CREWS
--------------------------------------
Name: J. Russell Crews
Title: Senior Vice President
SECURED PARTY:
THE FIRST NATIONAL BANK OF BOSTON,
as Agent
By: /s/ WILLIAM C. PURINTON
--------------------------------------
Name: William C. Purinton
Title: Vice President
BORROWER PLEDGE AGREEMENT - Page 8
<PAGE> 1
EXHIBIT 10.18
August 22, 1996
Snelling and Snelling, Inc.
1280 North Central Expressway
Suite 700
Dallas, Texas 75243-1716
Re: Credit Agreement (as the same may be amended, the "CREDIT
AGREEMENT") dated January 31, 1996 among Snelling and
Snelling, Inc., each of the banks or other lending
institutions which are or which may from time to time become a
party thereto (individually a "BANK" and collectively "THE
BANKS") and The First National Bank of Boston, individually as
a Bank and as agent for itself and the other Banks (the
"AGENT"). All capitalized terms used herein, unless otherwise
defined herein, shall have the same meaning as in the Credit
Agreement.
Ladies and Gentlemen:
The Borrower has requested that clause (i) of Section 10.5 of the
Credit Agreement be amended in its entirety to read as follows (the
"AMENDMENT"):
(i) (1) notes received in the ordinary course of Borrower's or
a Subsidiary's business from customers or franchisees in connection
with the settlement or satisfaction of the obligations of customers or
franchisees; provided that the outstanding principal amount of such
notes shall at no time exceed One Million Dollars ($1,000,000) in the
aggregate; and
(2) loans, advances or investments other than those described
in clauses (A) through (H) of this SECTION 10.5 and those described in
clause (1) of this clause (I) if the aggregate principal amount of
such loans and advances outstanding plus the aggregate acquisition
cost of the outstanding investments never exceeds One Hundred Thousand
Dollars ($100,000.00).
Each of the undersigned Banks and the Agent hereby agree to the
Amendment.
To induce the Banks and the Agent to agree to the Amendment, Borrower
and each of the Obligated Parties (by their execution below) hereby agree that:
1. Except as specifically set forth herein, all terms and
provisions of the Loan Documents, all rights of the Agent and
the Banks thereunder and all obligations of the Borrower and
each of the Obligated Parties thereunder shall remain in full
force and effect and are ratified and confirmed in all
respects.
2. The terms and conditions set forth in this letter shall modify
and supersede all inconsistent terms and provisions set forth
in the Credit Agreement.
3. The Credit Agreement, to the extent modified hereby, and the
other Loan Documents, shall continue to be legal, valid,
binding and enforceable in accordance with their respective
terms.
4. Each reference to the Credit Agreement in any Loan Documents
shall include a reference to the Credit Agreement as modified
hereby.
<PAGE> 2
Snelling and Snelling, Inc.
August 22, 1996
Page 2
Borrower represents and warrants to Agent and each Bank that the
following statements are true, correct and complete: (a) after giving effect to
this letter, no Default or Events of Default has occurred and is continuing;
(b) after giving effect to this letter, the representations and warranties set
forth in the Loan Documents are true and correct in all material respects on
and as of the date hereof with the same effect as though made on and as of such
date except with respect to any representations and warranties limited by their
terms to a specific date; and (c) the execution, delivery and performance of
this letter has been duly authorized by all necessary action on the part of
Borrower and the Obligated Parties and does not and will not: (1) violate any
provision of law applicable to Borrower or any Obligated Party, the certificate
of incorporation or bylaws of Borrower or any Obligated Party or any order,
judgment, or decree of any court or agency of government binding upon Borrower
or any Obligated Party; (2) conflict with, result in a breach of or constitute
(with due notice or lapse of time or both) a default under any material
contractual obligation of Borrower or any Obligated Party; (3) result in or
require the creation or imposition of any material Lien upon any of the
properties or assets of Borrower or any Obligated Party; or (4) require any
approval or consent of any Person under any material contractual obligation of
Borrower or any Obligated Party.
THIS LETTER EMBODIES THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES
HERETO AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS AND UNDERSTANDINGS WHETHER WRITTEN OR ORAL RELATING TO THE
SUBJECT MATTER HEREOF, AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE
PARTIES HERETO. This letter shall be governed by and construed in accordance
with the internal laws of the State of Texas without regard to conflicts of law
principles. This letter may be executed in one or more counterparts and on
telecopy counterparts each of which shall be deemed an original but all of
which together shall constitute one and the same agreement.
Very truly yours,
THE FIRST NATIONAL BANK OF BOSTON,
individually as a Bank and as the Agent
By: /s/ STEVEN ATLUETER
----------------------------------------
Name: Steven Atlueter
-------------------------------
Title: Vice President
------------------------------
BANK ONE, TEXAS, N.A.
By: /s/ R. ROGERS
----------------------------------------
R. Rogers
Vice President
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By: /s/ ROBERT SURECK
----------------------------------------
Robert Sureck
Vice President
<PAGE> 3
Snelling and Snelling, Inc.
August 22, 1996
Page 3
Accepted and Agreed to as of August 19, 1996
SNELLING AND SNELLING, INC.
By: /s/ J. RUSSELL CREWS
------------------------------------------
J. Russell Crews
Senior Vice President
ADVANCE PROCESSING SYSTEMS, INC.
By: /s/ J. RUSSELL CREWS
------------------------------------------
J. Russell Crews
President
PLANT MAINTENANCE, INC. OF CALIFORNIA
By: /s/ J. RUSSELL CREWS
-----------------------------------------
J. Russell Crews
Senior Vice President
/s/ ROBERT O. SNELLING, SR.
- ---------------------------------------------
Robert O. Snelling, Sr., individually
/s/ ANNE M. SNELLING
- ---------------------------------------------
Anne M. Snelling, individually
ARIMATHEA ASSOCIATES, LTD.
By: Nehemiah, Inc., its general partner
By: /s/ J. RUSSELL CREWS
--------------------------------
J. Russell Crews
Vice President and Treasurer
<PAGE> 1
EXHIBIT 10.19
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (the "AMENDMENT"), dated as
of July 25, 1997, is between SNELLING & SNELLING, INC. ("BORROWER"), a
Pennsylvania corporation, each of the banks or other lending institutions which
is a party hereto (the "BANKS") and BANKBOSTON, N.A. (formerly known as The
First National Bank of Boston), individually as a Bank (in such capacity,
herein "BANKBOSTON") and as agent for the Banks (in such capacity herein the
"AGENT").
RECITALS:
A. Borrower, BankBoston and Agent have entered into that certain
Credit Agreement dated as of January 31, 1996 (as amended by that certain
amendment letter dated August 22, 1996, the "AGREEMENT").
B. BankBoston assigned portions of its right, title and interest
in and to the Agreement to the other Banks pursuant to those certain Assignment
and Acceptances, both dated February 20, 1996.
C. Borrower, the Banks and Agent now desire to amend the
Agreement as herein set forth.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1 DEFINITIONS. Capitalized terms used in this
Amendment, to the extent not otherwise defined herein, shall have the same
meanings as in the Agreement, as amended hereby.
ARTICLE 2
Amendments
Section 2.1 AMENDMENT TO THE DEFINED TERM "ADJUSTED EBITDA".
Effective as of June 30, 1997, the definition of the term "Adjusted EBITDA" in
Section 1.1 of the Agreement is amended in its entirety to read as follows:
"ADJUSTED EBITDA" means, for any period (the "SUBJECT
PERIOD"), the total of the following calculated without duplication
for such period: (a) the Borrower's
SECOND AMENDMENT TO LOAN AGREEMENT - Page 1
<PAGE> 2
EBITDA; PLUS (b), on a pro forma basis, the EBITDA of each Prior
Target or, as applicable, the EBITDA of a Prior Target attributable to
the assets acquired from such Prior Target, for any portion of such
Subject Period occurring prior to the date of the Borrower's
acquisition of such Prior Target or the related assets but only to the
extent such EBITDA for such Prior Target can be established based on
financial statements of the Prior Target prepared in accordance with
GAAP; MINUS (c) the EBITDA of each Prior Company and, as applicable
but without duplication,the EBITDA of Borrower and each Subsidiary
attributable to all Prior Assets, in each case for any portion of such
Subject Period occurring prior to the date of the disposal of such
Prior Companies or Prior Assets. The term "Prior Company" means any
Subsidiary whose capital stock or other equity interests have been
disposed of, or all or substantially all of whose assets have been
disposed of, in each case, in a transaction with an unaffiliated third
party approved in accordance with this Agreement, and shall include
PMC. The term "Prior Assets" means assets that have been disposed of
by a division or branch of Borrower or a Subsidiary in a transaction
with an unaffiliated third party approved in accordance with this
Agreement which would not make the seller a "Prior Company" but
constitute all or substantially all of the assets of such division or
branch.
Section 2.2 AMENDMENT TO THE DEFINED TERMS "APS" AND "PMC".
Effective as of December 31, 1996, the definition of the terms "APS" and "PMC"
in Section 1.1 of the Agreement are amended in their entirety to read as
follows:
"APS" means Advance Processing Systems, Inc., a Delaware corporation.
"PMC" means Temporary Plant Cleaners, Inc., a California corporation
formerly known as Plant Maintenance, Inc. of California, who has been
released from its obligations under the Loan Documents pursuant to
that certain Release dated December 31, 1996.
Section 2.3 AMENDMENT TO THE DEFINED TERM "REVOLVING COMMITMENT".
Effective as of the date hereof, the definition of the term "REVOLVING
COMMITMENT" in Section 1.1 of the Agreement is amended in its entirety to read
as follows:
"REVOLVING COMMITMENT" means as to each Bank, the obligations
of such Bank to make advances of funds and purchase participation
interests in (or with respect to the Agent as a Bank, hold other
interests in) Letters of Credit in an aggregate principal amount at
any one time outstanding up to but not exceeding the amount set forth
in SCHEDULE 1.1(b) or, if applicable in the most recent Assignment and
Acceptance entered into by such Bank after July 7, 1997, as the same
may be reduced or terminated pursuant to SECTION 2.6 or SECTION 12.2
hereof. The aggregate amount of the Revolving Commitments of all
Banks equals Twenty-Two Million Five Hundred Thousand Dollars
($22,500,000.00).
SECOND AMENDMENT TO LOAN AGREEMENT - Page 2
<PAGE> 3
Section 2.4 AMENDMENT TO SECTION 5.4 (a)(ii). Effective as of
April 30, 1997, the "April 30, 1997" date set out in the first sentence of
Section 5.4 (a)(ii) of the Agreement is amended to be April 30, 1998, and the
"May 15, 1997" date set out in the second sentence of SECTION 5.4 (a)(ii) of
the Agreement is amended to be May 15, 1998.
Section 2.5 AMENDMENT TO SECTION 11.4. The ratio "4.25 to 1.00"
set forth in the third line of SECTION 11.4 of the Agreement is amended to be
"3.50 to 1.00".
Section 2.6 AMENDMENT TO SECTION 11.7. The table set out in
Section 11.7 of the Agreement is amended in its entirety to read as follows:
<TABLE>
<CAPTION>
========================================================
FISCAL YEAR AMOUNT
<S> <C>
========================================================
Ending December 31, 1996 $2,000,000
- --------------------------------------------------------
Ending December 31, 1997 $1,250,000
- --------------------------------------------------------
Each Fiscal Year thereafter $ 500,000
- --------------------------------------------------------
</TABLE>
Section 2.7 Amendment to Schedules. The Agreement is amended to
add Schedule 1.1(b) thereto to read in its entirety as set out on Schedule
1.1(b) hereto.
ARTICLE 3
CONDITIONS PRECEDENT
Section 3.1 CONDITIONS. The effectiveness of this Amendment is
subject to the satisfaction of the following conditions precedent:
(a) Agent shall have received all of the following, each
dated (unless otherwise indicated) the date of this Amendment, in form
and substance satisfactory to the Agent:
(i) RESOLUTIONS. Resolutions of the Board of
Directors of Borrower, each Obligated Party (other than the
Shareholders) and the General Partner certified by its
Secretary or an Assistant Secretary which authorize its
execution, delivery, and performance of this Amendment and the
other Loan Documents to which it is or is to be a party
hereunder;
(ii) SECRETARY CERTIFICATE. A certificate executed by
the Secretary or an Assistant Secretary of Borrower and each
Obligated Party (other than the Shareholders) and the General
Partner certifying to (A) the names of its officers authorized
to sign this Amendment and each of the other Loan Documents
to which Borrower is or is to be a party hereunder (including
the certificates contemplated herein) together with specimen
signatures of such officers if such specimen
SECOND AMENDMENT TO LOAN AGREEMENT - Page 3
<PAGE> 4
signatures had not previously been provided; (B) its articles
of incorporation or that such articles have not changed since
the Closing Date; (C) its bylaws or that such bylaws have not
changed since the Closing Date; and (D) with respect to the
General Partner only, to a true and correct copy of the
certificate of limited partnership of Arimathea and the
agreement of limited partnership of Arimathea or that such
documents have not changed since the Closing Date;
(iii) GOVERNMENTAL CERTIFICATES. Certificates of the
appropriate government officials of the state of incorporation
of Borrower, each Obligated Party (other than the
Shareholders) and the General Partner as to its existence and,
as applicable, good standing, each dated a current date;
(iv) REVOLVING NOTES. A Revolving Note for each Bank
in the original principal amount equal to such Bank's
increased Commitment, duly executed by Borrower;
(v) OPINION OF COUNSEL. A favorable opinion of legal
counsel to Borrower, each Obligated Party (other than the
Shareholders) and the General Partner) as to such matters the
Agent may reasonably request;
(vi) ADDITIONAL INFORMATION. Agent shall have
received such additional documents, instruments and
information as Agent or its legal counsel, Jenkens &
Gilchrist, a Professional Corporation, may request; and
(b) The representations and warranties contained
herein and in all other Loan Documents, as amended hereby, shall be
true and correct as of the date hereof as if made on the date hereof;
(c) No Default shall have occurred and be continuing;
(d) All proceedings taken in connection with the
transactions contemplated by this Amendment and all documents,
instruments, and other legal matters incident thereto shall be
satisfactory to Agent and its legal counsel, Jenkens & Gilchrist, a
Professional Corporation; and
(e) Borrower shall have paid an up-front fee of 3/8% on
each Bank's incremental increase in its Revolving Commitment.
SECOND AMENDMENT TO LOAN AGREEMENT - Page 4
<PAGE> 5
ARTICLE 4
RATIFICATIONS, REPRESENTATIONS AND WARRANTIES
Section 4.1 RATIFICATIONS. The terms and provisions set forth in
this Amendment shall modify and supersede all inconsistent terms and provisions
set forth in the Agreement and except as expressly modified and superseded by
this Amendment, the terms and provisions of the Agreement and the other Loan
Documents are ratified and confirmed and shall continue in full force and
effect. Borrower, Agent and each Bank agree that the Agreement as amended
hereby and the other Loan Documents shall continue to be legal, valid, binding
and enforceable in accordance with their respective terms.
Section 4.2 REPRESENTATIONS AND WARRANTIES. Borrower hereby
represents and warrants to Agent and each Bank that (i) the execution, delivery
and performance of this Amendment and any and all other Loan Documents executed
and/or delivered in connection herewith have been authorized by all requisite
action on the part of Borrower and each Obligated Party and will not violate
the articles of incorporation, bylaws, agreement of limited partnership or
certificate of limited partnership, as applicable, of Borrower, the General
Partner and each other Obligated Party, as applicable (ii) the representations
and warranties contained in the Agreement, as amended hereby, and any other
Loan Document are true and correct on and as of the date hereof as though made
on and as of the date hereof, (iii) no Default has occurred and is continuing;
(iv) Borrower and each Obligated Party are each in full compliance with all
covenants and agreements contained in the Agreement as amended hereby and the
other Loan Documents.
ARTICLE 5
MISCELLANEOUS
Section 5.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made in this Amendment or any other Loan
Document including any Loan Document furnished in connection with this
Amendment shall survive the execution and delivery of this Amendment and the
other Loan Documents, and no investigation by Agent or any Bank or any closing
shall affect the representations and warranties or the right of Agent or any
Bank to rely upon them.
Section 5.2 REFERENCE TO AGREEMENT. Each of the Loan Documents,
including the Agreement and any and all other agreements, documents, or
instruments now or hereafter executed and delivered pursuant to the terms
hereof or pursuant to the terms of the Agreement as amended hereby, are hereby
amended so that any reference in such Loan Documents to the Agreement shall
mean a reference to the Agreement as amended hereby.
Section 5.3 EXPENSES OF LENDER. As provided in the Agreement,
Borrower agrees to pay on demand all costs and expenses incurred by Agent in
connection with the preparation, negotiation, and execution of this Amendment
and the other Loan Documents executed pursuant hereto.
SECOND AMENDMENT TO LOAN AGREEMENT - Page 5
<PAGE> 6
Section 5.4 SEVERABILITY. Any provision of this Amendment held by
a court of competent jurisdiction to be invalid or unenforceable shall not
impair or invalidate the remainder of this Amendment and the effect thereof
shall be confined to the provision so held to be invalid or unenforceable.
Section 5.5 APPLICABLE LAW. This Amendment shall be governed by
and construed in accordance with the laws of the State of Texas and the
applicable laws of the United States of America.
Section 5.6 SUCCESSORS AND ASSIGNS. This Amendment is binding upon
and shall inure to the benefit of Agent, each Bank and Borrower and their
respective successors and assigns, except Borrower may not assign or transfer
any of its rights or obligations hereunder without the prior written consent of
all the Banks.
Section 5.7 COUNTERPARTS. This Amendment may be executed in one or
more counterparts, and on telecopy counterparts each of which when so executed
shall be deemed to be an original, but all of which when taken together shall
constitute one and the same agreement.
Section 5.8 EFFECT OF WAIVER. No consent or waiver, express or
implied, by Agent or any Bank to or for any breach of or deviation from any
covenant, condition or duty by Borrower or any Obligated Party shall be deemed
a consent or waiver to or of any other breach of the same or any other
covenant, condition or duty.
Section 5.9 HEADINGS. The headings, captions, and arrangements
used in this Amendment are for convenience only and shall not affect the
interpretation of this Amendment.
Section 5.10 ENTIRE AGREEMENT. THIS AMENDMENT AND ALL OTHER
INSTRUMENTS, DOCUMENTS AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH
THIS AMENDMENT EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND
SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND
UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THIS AMENDMENT, AND MAY
NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO
ORAL AGREEMENTS AMONG THE PARTIES HERETO.
SECOND AMENDMENT TO LOAN AGREEMENT - Page 6
<PAGE> 7
Executed as of the date first written above.
SNELLING AND SNELLING, INC.
By: /s/ J. RUSSELL CREWS
-------------------------------
J. Russell Crews
Senior Vice President
BANKBOSTON, N.A., formerly The
First National Bank of Boston,
individually as a Bank and as the
Agent
By: /s/ E. DAVID BESCH, JR.
-------------------------------
Name: E. David Besch, Jr.
-----------------------------
Title: Managing Director
----------------------------
BANK ONE, TEXAS, N.A.
By: /s/ R. ROGERS
-------------------------------
R. Rogers
Vice President
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By: /s/ ROBERT SURECK
-------------------------------
Robert Sureck
Vice President
Each Obligated Party hereby consents and agrees to this Amendment and
agrees that the Loan Documents to which it is a party shall remain in full
force and effect and shall continue to be its legal, valid and binding
obligation enforceable against it in accordance with their respective terms.
SECOND AMENDMENT TO LOAN AGREEMENT - Page 7
<PAGE> 8
SNELLING AND SNELLING, INC.
By: /s/ J. RUSSELL CREWS
---------------------------------
J. Russell Crews
Senior Vice President
ADVANCE PROCESSING SYSTEMS, INC.
By: /s/ J. RUSSELL CREWS
---------------------------------
J. Russell Crews
President
/s/ ROBERT O. SNELLING, SR.
------------------------------------
Robert O. Snelling, Sr., individually
/s/ ANNE M. SNELLING
------------------------------------
Anne M. Snelling, individually
ARIMATHEA ASSOCIATES, LTD.
By: Nehemiah, Inc., its general
partner
By: /s/ J. RUSSELL CREWS
----------------------------
J. Russell Crews
Vice President and Treasurer
SECOND AMENDMENT TO LOAN AGREEMENT - Page 8
<PAGE> 9
SCHEDULE 1.1(b)
to
Second Amendment
to
Snelling & Snelling
Credit Agreement
<TABLE>
<CAPTION>
================================================================================
Bank Revolving Commitment
---- --------------------
================================================================================
<S> <C> <C>
1. BankBoston, N.A. $ 9,562,500
- --------------------------------------------------------------------------------
2. Bank One, Texas, N.A. $ 5,625,000
- --------------------------------------------------------------------------------
3. Texas Commerce Bank National Association $ 7,312,500
- --------------------------------------------------------------------------------
Total $22,500,000
================================================================================
</TABLE>
Schedule 1.1(b) to Second Amendment - Solo Page
<PAGE> 1
EXHIBIT 10.20
EXHIBIT "B" TO OFFERING CIRCULAR
===============================================================================
FRANCHISE AGREEMENT
Office Number:
1. PARTIES
This Franchise Agreement ("AGREEMENT") is between SNELLING and SNELLING, Inc.,
a Pennsylvania corporation, which shall collectively include its affiliates and
successors in interest, where applicable ("SNELLING"), and ____________________
__________________________________________("FRANCHISEE"), a
|_| Sole Proprietorship |_| Partnership |_| Limited Liability Company
|_| _______Corporation under the Laws of ______________________ with a fiscal
year that ends _______________________ and relates to a |_| Standard PS
|_| Subleased PS |_| Converted PS |_| Expansion PS |_|
Specialty PS:_________________________________________________________.
2. EXECUTION
FRANCHISEE and SNELLING have executed this AGREEMENT as of ________________,
19__.
FRANCHISEE
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Attest: SNELLING AND SNELLING, INC.
By:
- --------------------------------- ------------------------------
Name: Joseph G. Stover Name: Robert R. Paulk
Title: Assistant Secretary Title: Senior Vice President
CORPORATE SEAL OF SNELLING
Each of the PRINCIPAL OWNERS, jointly and severally, makes all of the
representations, warranties, covenants and agreements of the PRINCIPAL OWNERS
set forth in this Agreement and is obligated to perform hereunder:
OWNERSHIP
DATE PERCENTAGE PRINCIPAL OWNERS
, 19 % (1)
- ------------------ -- ------- ----------------------------
Name:
--------------------------
, 19 % (2)
- ------------------ -- ------- ----------------------------
Name:
--------------------------
, 19 % (3)
- ------------------ -- ------- ----------------------------
Name:
--------------------------
, 19 % (4)
- ------------------ -- ------- ----------------------------
Name:
--------------------------
Page 1 of 32
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
1. PARTIES...................................................................1
2. EXECUTION.................................................................1
3. RECITALS..................................................................5
4. DEFINITIONS...............................................................5
5. THE LICENSE RELATIONSHIP.................................................10
5(a) GRANT...............................................................10
5(b) TERM................................................................10
5(c) USE OF SNELLING PROPERTY............................................11
5(d) OWNERSHIP BY SNELLING OF THE SNELLING PROPERTY......................11
5(e) MODIFICATION OF PROPRIETARY MARKS...................................11
5(f) INDEPENDENT CONTRACTOR..............................................11
5(g) NOTICE OF LEGAL ACTION AND INDEMNIFICATION..........................11
5(h) EMPLOYEES AND CLIENTS...............................................12
6. START-UP AND TRAINING....................................................12
6(a) OPENING.............................................................12
6(b) LOCATION AND LEASE..................................................12
6(c) LISTINGS............................................................12
6(d) MANAGER TRAINING AND OPENING AND POST-OPENING TRAINING..............12
6(e) REMEDIAL TRAINING AND ASSISTANCE....................................13
6(f) TRAINING BY FRANCHISEE..............................................13
6(g) MATERIALS...........................................................13
7. CONFIDENTIAL INFORMATION.................................................13
7(a) TRADE SECRET........................................................13
7(b) CONFIDENTIAL INFORMATION............................................13
7(c) NON-DISCLOSURE OF CONFIDENTIAL INFORMATION..........................14
7(d) PROTECTION OF CONFIDENTIAL INFORMATION..............................14
8. OPERATION OF THE PS......................................................15
8(a) COMPLIANCE WITH LAW AND SYSTEM......................................15
8(b) TREATMENT OF PERSONNEL..............................................15
8(c) REQUIRED INSURANCE..................................................15
8(d) INSURANCE PROGRAMS..................................................16
8(e) OUTSIDE CONSULTANTS.................................................16
8(f) FULL TIME MANAGEMENT................................................16
8(g) SUBMISSION OF REPORTS...............................................16
8(h) NO OTHER BUSINESS CONDUCTED AT LOCATION.............................16
8(i) COMPLIANCE WITH MATERIALS...........................................16
8(j) MODERNIZATION.......................................................16
9. DISTRIBUTION ACCOUNT AND PROCESSING......................................17
9(a) DISTRIBUTION ACCOUNT................................................17
9(b) TRANSMISSION OF INFORMATION.........................................17
9(c) PROCESSING BY SNELLING..............................................17
9(d) CREDIT AND COLLECTION...............................................17
9(d)(1) COLLECTION....................................................17
9(d)(2) CLIENT PAYMENTS MADE DIRECTLY TO SNELLING.....................17
9(d)(3) ENDORSEMENT AUTHORITY.........................................18
9(d)(4) CLIENT CREDIT AND APPROVAL....................................18
9(d)(5) CLIENT AGREEMENTS.............................................18
9(d)(6) RELATED PARTIES...............................................18
9(e) ACCURATE CLASSIFICATION OF EMPLOYEES FOR WORKERS' COMPENSATION.....18
</TABLE>
Page 2 of 32
<PAGE> 3
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
9(f) SECURITY INTEREST...................................................18
10. FEES AND FINANCIAL OBLIGATIONS..........................................18
10(a) FRANCHISE FEE......................................................18
10(b) TRAINING FEE AND EXPENSES..........................................18
10(c) OVERRIDE...........................................................19
10(d) PROMOTION FUND.....................................................19
10(e) SERVICE FEES.......................................................19
10(e)(i) BASE SERVICE FEE.............................................19
10(e)(ii) NATIONAL ACCOUNT SERVICE FEE................................20
10(f) OTHER FINANCIAL OBLIGATIONS; SET-OFF...............................20
10(g) INTEREST...........................................................20
11. RECORDKEEPING; REPORTING; AUDITS........................................20
11(a) DOCUMENTS AND INFORMATION..........................................20
11(b) RECORDKEEPING AND REPORTING........................................20
11(c) FINANCIAL AUDITS...................................................20
11(d) COMPLIANCE AUDITS..................................................21
11(e) USE OF INFORMATION.................................................21
12. OWNERSHIP STRUCTURE AND TRANSFER........................................21
12(a) DISCLOSURE OF OWNERSHIP STRUCTURE..................................21
12(b) NO ALIENATION......................................................21
12(c) CONDITIONS FOR OWNERSHIP TRANSFER..................................21
12(d) RIGHT OF FIRST REFUSAL.............................................22
12(e) LOSS OF CONTROL....................................................22
12(e)(1) CHANGE OF OWNERSHIP.........................................22
12(e)(2) NEW FRANCHISE AGREEMENT.....................................22
13. TERMINATION.............................................................23
13(a) TERMINATION BY FRANCHISEE..........................................23
13(b) TERMINATION BY SNELLING FOR FAILURE TO CURE BREACH.................23
13(c) TERMINATION BY SNELLING WITHOUT OPPORTUNITY TO CURE BREACH........23
13(d) FRANCHISEE'S AND OWNERS' TERMINATION DUTIES........................24
13(e) TRANSFER OF EMPLOYEES..............................................26
13(f) MONEY OWED.........................................................26
13(g) WAIVERS; COSTS OF BREACH...........................................26
13(h) MULTIPLE FRANCHISE AGREEMENTS......................................26
13(i) CONTINUED EFFECT OF AGREEMENT......................................26
14. RULES GOVERNING UNFAIR TRADE PRACTICES..................................26
14(a) ACKNOWLEDGMENTS....................................................26
14(b) NO COMPETITION DURING TERM OF THIS AGREEMENT.......................26
14(c) POST-TERMINATION UNFAIR COMPETITION AND UNFAIR TRADE PRACTICES.....27
14(d) INFORMATION REQUEST................................................28
14(e) INJUNCTIONS........................................................28
14(f) INDIRECT CONDUCT...................................................28
14(g) PERSONNEL SERVICE BUSINESS.........................................28
15. GENERAL LEGAL MATTERS...................................................28
15(a) GOVERNING LAW......................................................28
15(b) MEDIATION..........................................................28
15(c) ARBITRATION........................................................29
15(d) VENUE..............................................................30
15(e) MUTUAL BENEFIT.....................................................30
15(f) AMENDMENTS TO FRANCHISE AGREEMENT..................................30
15(g) NOTICES............................................................31
15(h) PARTIES BOUND; ASSIGNMENT BY SNELLING..............................31
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
15(i) SEVERABILITY.......................................................31
15(j) ENTIRE AGREEMENT...................................................31
15(k) FORCE MAJEURE......................................................31
15(l) RULES OF CONSTRUCTION..............................................31
16. ACKNOWLEDGMENTS AND REPRESENTATIONS.....................................32
</TABLE>
ATTACHMENT 1 STATE ADDENDUM
ATTACHMENT 2 APPROVED LOCATION
ATTACHMENT 3 GUARANTY
Page 4 of 32
<PAGE> 5
3. RECITALS
3(a) As of the date of this AGREEMENT, SNELLING has been in the personnel
services business for over 45 years. During that period SNELLING has expended
substantial time, effort and financial resources to accumulate extensive
knowledge of and experience in the personnel services industry. On the basis of
this knowledge and experience, SNELLING has developed and continues to develop
a unique and distinctive SYSTEM for the operation and management of a personnel
services business, which includes: management and personnel training;
operational procedures and techniques; advertising and promotional programs;
the MATERIALS that SNELLING prepares and updates on a continuing basis; the
CONFIDENTIAL INFORMATION (as described in Section 7) that includes extremely
sensitive and personal information concerning the EMPLOYEES, JOB-SEEKERS,
CLIENTS (including specific CLIENT contacts and personal and background
information on such individuals), and SNELLING's other business relationships,
all of which is acknowledged to be the property of SNELLING (as provided in
Section 5(d)). All of the components of the SYSTEM constitute valuable trade
secrets that are proprietary to SNELLING.
3(b) FRANCHISEE and the PRINCIPAL OWNERS desire to use the CONFIDENTIAL
INFORMATION, the SYSTEM and the PROPRIETARY MARKS in connection with the
operation of a SNELLING personnel services business, as well as to receive the
training and other assistance provided by SNELLING in connection therewith.
3(c) FRANCHISEE and the PRINCIPAL OWNERS recognize that the value of
CONFIDENTIAL INFORMATION, the SYSTEM and the PROPRIETARY MARKS are enhanced by
each personnel service business in the NETWORK operating in accordance with the
SYSTEM and the highest standards of business conduct, and understand and
acknowledge the importance to SNELLING and to other franchisees in the SYSTEM
of FRANCHISEE'S and the PRINCIPAL OWNERS' compliance with this AGREEMENT and
the SYSTEM. In recognition of the value of the CONFIDENTIAL INFORMATION and of
participating in the SYSTEM, FRANCHISEE has applied for a franchise to operate
the type of PS specified in Section 1. Based on its evaluation of FRANCHISEE'S
and the PRINCIPAL OWNERS' experience, capabilities and character, and in
reliance on representations and warranties FRANCHISEE and the PRINCIPAL OWNERS
made in their franchise application and on acknowledgments, representations,
warranties, promises and covenants FRANCHISEE and the PRINCIPAL OWNERS make in
this AGREEMENT, SNELLING has decided to grant the license to FRANCHISEE under
the terms and conditions described below.
3(d) FRANCHISEE and the PRINCIPAL OWNERS promise to refrain from any
unauthorized use of the CONFIDENTIAL INFORMATION, the SYSTEM and the
PROPRIETARY MARKS and recognize that SNELLING is entering into this AGREEMENT
in reliance on this promise. FRANCHISEE and the PRINCIPAL OWNERS also recognize
and agree that any use of the CONFIDENTIAL INFORMATION, the SYSTEM and the
PROPRIETARY MARKS other than for the operation of a SNELLING personnel services
business would be a breach of that promise, this AGREEMENT and the relationship
between FRANCHISEE, the PRINCIPAL OWNERS and SNELLING.
4. DEFINITIONS
As used in this AGREEMENT, the following terms shall have the meanings set
forth below:
"ADJUSTMENTS"
SNELLING'S charges to the DISTRIBUTION ACCOUNT for items such as bank wire
transfer fees, overnight courier packages, stop payment check charges, manual
check charges, non-sufficient fund charges, UCC-1, UCC-3, UCC-11, and similar
filing fees, credit reports and other credit or collection services deemed
appropriate by SNELLING, other collection costs, any adjustments to PAYROLL
COSTS, INSURANCE COSTS, BENEFITS and any other charges to the DISTRIBUTION
ACCOUNT.
"BASE SERVICE FEE"
SNELLING'S charges to the DISTRIBUTION ACCOUNT with respect to TEMPORARY HELP
BILLINGS calculated in accordance with Section 10(e)(i) (Base Service Fee),
including any additions to such charges if the prime interest rate exceeds 12%.
"BENEFITS"
SNELLING'S charges to the DISTRIBUTION ACCOUNT for disability insurance, health
insurance, special hours incentive pay, holiday pay, vacation pay, and any
other benefits now or hereafter deemed mandatory or necessary by SNELLING
relating to EMPLOYEES.
"BILLINGS"
The amount SNELLING bills a CLIENT or JOB-SEEKER. BILLINGS shall include
CONVERSION FEES, LIQUIDATION FEES, contract temporary charges, PERMANENT
PLACEMENT and TEMP-TO-HIRE charges, retainers, consulting charges, or any other
similar fees,
Page 5 of 32
<PAGE> 6
EXPENSE REIMBURSEMENTS to the extent such are not billed at cost, and any
service, sales or related taxes. "GROSS MARGIN - NATIONAL ACCOUNT BILLINGS" are
BILLINGS less (1) PAYROLL; (2) PAYROLL COSTS; (3) INSURANCE COSTS; (4)
BENEFITS; and (5) sales taxes and other taxes. "GROSS MARGIN - TEMPORARY HELP
BILLINGS" are BILLINGS less: (1)PAYROLL; (2) PAYROLL COSTS; (3) INSURANCE
COSTS; (4) BENEFITS; (5) sales taxes and any other taxes; (6) BASE SERVICE
FEES; (7) OVERRIDES; and (8) PROMOTION FUND contributions. "PLACEMENT BILLINGS"
are BILLINGS from the business of helping JOB-SEEKERS obtain PERMANENT
PLACEMENT or self-employment; helping CLIENTS obtain employees or business
associates; the writing of resumes; out placement; outsourcing business
opportunity referrals; consulting; testing, training and counseling;
advertising and payments in kind; co-op activities; and all other similar or
related products or services. "TEMPORARY HELP BILLINGS" are BILLINGS from
supplying FIELD EMPLOYEES to CLIENTS (other than NATIONAL ACCOUNTs), or
performing any other similar or related services, whether performed at
FRANCHISEE'S, CLIENT'S, or other premises (i.e., guards, security personnel,
meter readers, etc.).
"BUSINESS DAY"
Each day other than Sundays, Saturdays, and holidays, as defined in the
MATERIALS.
"CHARGEBACKS"
BILLINGS that are repudiated in whole or in part by a CLIENT; the amount of
BILLINGS that produce a negative GROSS MARGIN TEMPORARY HELP BILLINGS; BILLINGS
that remain unpaid for 60 days after their invoice date or upon termination of
this Agreement; the additional amounts due if the CLIENT is classified as a
high credit risk or the CLIENT'S unpaid BILLINGS exceeds SNELLING'S credit
limits; or as otherwise covered in the MATERIALS.
"CLIENT"
An individual or entity that uses, or desires to use, the PS or SNELLING
services.
"CLIENT REFUNDS"
Amounts due to CLIENTS relating to service guarantees, BILLING errors, CLIENT
dissatisfaction, or as otherwise authorized by the MATERIALS.
"CONFIDENTIAL INFORMATION"
All confidential information owned or licensed by SNELLING or delivered to
FRANCHISEE in confidence, including information developed by the parties during
the term of this AGREEMENT, as more fully described in Section 7(b)
(Confidential Information).
"CONTROL"
An OWNERSHIP INTEREST of more than 50%, or an OWNERSHIP INTEREST of less than
50% if SNELLING determines, in its sole discretion, that such OWNER has
substantial CONTROL of FRANCHISEE or the PS or the power, through any
arrangement, capital structure, delegated power, or other circumstance, to
determine the actions of the PS. SNELLING may determine CONTROL by aggregating
the OWNERSHIP INTEREST, control or power of any OWNER with those of such
OWNER'S family members or any other person(s). More than one OWNER may be
deemed to have CONTROL. Unless an OWNERSHIP TRANSFER is subject to Section
12(b) (No Alienation), an OWNERSHIP TRANSFER by any OWNER who is deemed to have
CONTROL shall result in a "change" in CONTROL for purposes of Section 12
(Ownership Structure and Transfer) if, after giving effect to such OWNERSHIP
TRANSFER, such OWNER is no longer deemed to have CONTROL.
"CO-OP SPLITS"
Amounts FRANCHISEE owes to co-oping offices relating to splits of RECEIPTS for
services provided cooperatively to CLIENTS.
"COPYRIGHTED WORKS"
All MATERIALS that contain the copyright identification "(c) date SNELLING and
SNELLING, Inc." and all other MATERIALS entitled to the protection of the
copyright LAW.
"CONVERSION FEE"
A TEMPORARY HELP BILLING to a CLIENT related to converting a FIELD EMPLOYEE to
a CLIENT employee.
"CONVERTED PS"
A PS that was converted from an existing personnel services business that was
not a part of the SYSTEM.
"DISTRIBUTION ACCOUNT"
The account maintained by SNELLING reflecting the accumulation of credits and
charges relating to the PS.
Page 6 of 32
<PAGE> 7
"DOMAIN NAMES"
The Internet domain names "SNELLING.COM," "SNELLINGCORP.COM," "SNELLINGINC.COM"
and any other domain names that may be utilized by SNELLING and any domain
names utilized by FRANCHISEE in connection with the PS or the PROPRIETARY MARKS
or for advertising or promotion of personnel services on the Internet.
"EMPLOYEE"
An individual employed by SNELLING to provide services to a CLIENT, which
individual shall be classified as either a FIELD EMPLOYEE or LEASED EMPLOYEE. A
"FIELD EMPLOYEE" is a JOB-SEEKER who becomes an employee of SNELLING when
FRANCHISEE sells their services in accordance with this AGREEMENT to one or
more CLIENTS to fill a limited, special, temporary, contract or TEMP-TO-HIRE
need. A "LEASED EMPLOYEE" is an employee of a CLIENT who becomes an employee of
SNELLING pursuant to a written outsourcing agreement between SNELLING and the
CLIENT under which the CLIENT has transferred all or part of its existing work
force onto SNELLING'S payroll and SNELLING has assumed responsibility for the
administration of payroll, benefits and other human resources activities. A
LEASED EMPLOYEE will also include any employee of SNELLING who subsequently
becomes covered by such outsourcing agreement. In no case will a FIELD EMPLOYEE
be classified as a LEASED EMPLOYEE for purposes of this Agreement.
"EXPANSION PS"
See PS.
"EXPENSE REIMBURSEMENTS"
Any amounts paid to EMPLOYEES for items such as meals, parking, supplies,
travel allowances, equipment, mileage, and any other similar or related items
billed at cost to CLIENTS.
"FIELD EMPLOYEE"
See EMPLOYEE.
"GROSS MARGIN - NATIONAL ACCOUNT BILLINGS"
See BILLINGS.
"GROSS MARGIN - TEMPORARY HELP BILLINGS"
See BILLINGS.
"INSURANCE COSTS"
SNELLING'S charges to the DISTRIBUTION ACCOUNT for obtaining from appropriate
insurance carriers, or any retention assumed by SNELLING for workers'
compensation, commercial general liability and umbrella, errors and omissions,
crime/bond, and employment practices liability insurance coverage or any other
coverage deemed appropriate by SNELLING on the EMPLOYEES, and for reimbursing
any expenses incurred, and deductibles or defense costs, in connection with
such policies or their administration. Such charges will include but are not
limited to: SNELLING'S cost of obtaining insurance on EMPLOYEES, including
residual market loads and any fees or costs related to the number of claims and
loss experience of the EMPLOYEES submitted by FRANCHISEE for processing;
SNELLING'S cost of administering and implementing the insurance program,
including brokerage and consulting expenses, overhead, salaries and BENEFITS,
travel, claims-handling fees and legal fees related to such claims;
deductibles; charges for misclassification of EMPLOYEES for workers'
compensation reporting and charge purposes; and taxes and any other related
fees or costs.
"INTEREST"
The interest rate designated by SNELLING from time to time, but in no event
will such rate be lower than 12% per annum or higher than the maximum rate
allowed by LAW.
"JOB-ORDER"
A verbal or written notification from a CLIENT of a job opening (e.g. PERMANENT
PLACEMENT, temporary, TEMP-TO-HIRE, contract or other type).
"JOB-SEEKER"
An individual who seeks out or is sought out by FRANCHISEE, SNELLING or other
franchisees, with respect to self-employment or employment by a CLIENT,
SNELLING or a franchisee.
Page 7 of 32
<PAGE> 8
"LAW"
The collective body of federal, state and local constitutions, statutes,
regulations, ordinances, codes, rules, official opinions, rulings, guidelines,
orders, case precedents, and other expressions or prescriptions of civil
authorities regulating conduct, property, and rights within or affecting their
jurisdictions.
"LEASED EMPLOYEE"
See "EMPLOYEE."
"LIQUIDATION FEE"
A fee charged to a CLIENT or other personnel services business for the
continued use of a former EMPLOYEE by a CLIENT through another personnel
services business.
"LISTINGS"
All telephone and facsimile numbers and related Yellow Pages(R)
listings/advertisements or other business listings or directories, and all
DOMAIN NAMES used in connection with the PS or the PROPRIETARY MARKS.
"LOCATION"
The premises from which FRANCHISEE shall operate the PS. The specific street
address of the LOCATION shall be set forth in Attachment 2.
"MANAGER"
An individual approved by SNELLING to manage full time all or a portion of the
PS and who has satisfied and continues to meet SNELLING'S training
requirements.
"MATERIALS"
All materials, as modified by SNELLING from time-to-time, including manuals,
written directives and policy statements, COPYRIGHTED WORKS, forms, audio or
video tapes, Internet web pages whether owned or licensed by SNELLING that are
to be used by FRANCHISEE in the PS.
"NATIONAL ACCOUNT"
A CLIENT designated by SNELLING as a "NATIONAL ACCOUNT" and with whom SNELLING
has entered into an agreement for the performance of personnel related services
by some or all of the NETWORK.
"NATIONAL ACCOUNT BILLINGS"
See BILLINGS.
"NATIONAL ACCOUNT SERVICE FEE"
SNELLING'S charges to the DISTRIBUTION ACCOUNT with respect to NATIONAL ACCOUNT
BILLINGS calculated in accordance with Section 10(e)(iii) (National Account
Service Fee).
"NETWORK"
All of the personnel services businesses licensed or owned by SNELLING.
"OVERRIDE"
The fee due SNELLING on all TEMPORARY HELP BILLINGS and RECEIPTS from PLACEMENT
BILLINGS as set forth in Section 10(c) (Override).
"OWNER"
Each individual or entity that, directly or indirectly, has an OWNERSHIP
INTEREST in FRANCHISEE. A "PRINCIPAL OWNER" is each OWNER who, collectively or
individually, directly or indirectly, has a 10% or more OWNERSHIP INTEREST in
FRANCHISEE or who has been designated by SNELLING as a PRINCIPAL OWNER
hereunder, each of whom must execute this AGREEMENT and the Guaranty in the
form of Attachment 3.
"OWNERSHIP INTEREST"
The ultimate percentage ownership interest that an OWNER holds in FRANCHISEE.
(Example: an OWNER who owns a 25% interest in a corporation that owns a 50%
interest in FRANCHISEE would hold a 12.5% OWNERSHIP INTEREST in FRANCHISEE.)
Page 8 of 32
<PAGE> 9
"OWNERSHIP TRANSFER"
Any transfer, sale, assignment, pledge or other encumbrance of all or a part of
the assets of the PS by FRANCHISEE or any transfer, sale, assignment, pledge or
other encumbrance of an OWNERSHIP INTEREST by an OWNER that effects a change in
CONTROL or results in a change in a PRINCIPAL OWNER.
"PAYROLL"
The EMPLOYEES' gross wages, including bonuses, commissions and other forms of
compensation.
"PAYROLL COSTS"
SNELLING'S charges to the DISTRIBUTION ACCOUNT for the federal withholding,
FICA, state withholding, state unemployment, local taxes of any type or kind,
and unemployment consulting fees. SNELLING may allocate and charge FRANCHISEE
for the unemployment claims experience of the EMPLOYEES submitted by FRANCHISEE
for processing in particular as well as the SYSTEM in general.
"PERMANENT PLACEMENT"
The placement of a JOB-SEEKER in a position with a CLIENT where such JOB-SEEKER
will be an employee of such CLIENT.
"PLACEMENT BILLINGS"
See BILLINGS.
"PRINCIPAL OWNER"
See "OWNER."
"PROMOTION FUND"
The fund established by SNELLING to promote the NETWORK.
"PROPRIETARY MARKS"
The service marks "SNELLING(R)," "SNELLING and SNELLING(R)," "SNELLING SEARCH,"
and "SNELLING TEMPORARIES(R);" the descriptive phrase "Licensed by SNELLING and
SNELLING, Inc.;" and such other trade names, trademarks, and service marks as
have been or may be designated or substituted by SNELLING for use in connection
with the PS.
"PS"
The independently operated personnel services business licensed by this
AGREEMENT to operate a business of helping others to obtain employment or
self-employment; help to employers or others to obtain employees, franchisees
or business associates; the writing of resumes; outplacement; outsourcing;
business opportunity referrals; personnel consultation; employment-related
testing, counseling or training; temporary and TEMP-TO-HIRE employment;
employee leasing; and all other similar or related products or services,
whether or not considered by LAW to be employment service or employment agency
activity. An EXPANSION PS is a PS that is a new franchisee, under a separate
then-current form of SNELLING franchise agreement, opened and controlled by a
PRINCIPAL OWNER of an existing SNELLING licensed personnel services business. A
"SPECIALTY PS" is a PS that offers primarily PERMANENT PLACEMENT and
TEMP-TO-HIRE services in specific industries or market segments. With
SNELLING's written approval, a SPECIALTY PS may provide other personnel
services. A "STANDARD PS" is a PS that offers full-service personnel services
including PERMANENT PLACEMENT, temporary assignment and TEMP-TO-HIRE services,
consulting, counseling and other similar personnel services. A "SUBLEASED PS"
is a PS that is operated from a LOCATION that is subleased from SNELLING.
"RECEIPTS"
All money and other valuable consideration, including barter, received during
or after the term of this AGREEMENT by SNELLING or FRANCHISEE, STAFF EMPLOYEES,
collection agents, or other assignees, as revenue generated by the operation of
the PS. Consideration other than money shall be given its fair market value as
reasonably determined by SNELLING.
"REIMBURSEMENTS"
Amounts collected from CLIENTS for BILLINGS that were previously treated as
CHARGEBACKS.
"SERVICE FEES"
BASE SERVICE FEE and NATIONAL ACCOUNT SERVICE FEE.
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<PAGE> 10
"SERVICE FILE"
A JOB-ORDER, resume, application, work paper or other record containing
information about a JOB-SEEKER, applicant, employer, EMPLOYEE, STAFF EMPLOYEE,
CLIENT or position.
"SNELLING PROPERTY"
Collectively, the SYSTEM, the PROPRIETARY MARKS, the DOMAIN NAMES, the
COPYRIGHTED WORKS, the MATERIALS, the CONFIDENTIAL INFORMATION, SERVICE FILES,
the proprietary software of SNELLING and the goodwill associated with and
symbolized by them, and all improvements, enhancements, additions and
modifications to any of them.
"SPECIALTY PS"
See PS.
"STAFF EMPLOYEE"
Any individual who is employed by the PS and helps operate the PS.
"STANDARD PS"
See PS.
"SUBLEASED PS"
See PS.
"SYSTEM"
The methods, tools, MATERIALS and knowledge owned, licensed or used by SNELLING
and licensed and/or provided to FRANCHISEE for the establishment, development,
and operation of personnel services businesses, with distinguishing
characteristics that include: the PROPRIETARY MARKS, the DOMAIN NAMES and
COPYRIGHTED WORKS; management and personnel training; operational procedures
and techniques; advertising and promotional programs and materials; and record
keeping and reporting. Any of these may be changed, improved, developed or
discontinued by SNELLING from time to time.
"TEMP-TO-HIRE"
The placement of a FIELD EMPLOYEE on an assignment with a CLIENT that is
intended to lead to employment by such CLIENT.
"TEMPORARY HELP BILLINGS"
See BILLINGS.
5. THE LICENSE RELATIONSHIP
5(a) GRANT
SNELLING grants to FRANCHISEE, subject to the terms and conditions of this
AGREEMENT and in reliance on the representations, warranties, covenants,
agreements and acknowledgments of FRANCHISEE and each PRINCIPAL OWNER
hereunder, a nonexclusive license to use the SNELLING PROPERTY solely in
connection with the operation of the type of PS specified in Section 1 from the
LOCATION(S) approved by SNELLING and set forth in Attachment 2, and FRANCHISEE
accepts the rights and obligations hereunder. FRANCHISEE and the PRINCIPAL
OWNERS acknowledge and agree that the personnel service business by its nature
is highly competitive and that the market for such services is fragmented with
most personnel service providers, including successful providers, having a
minimal market share in any given market. Therefore, this grant is
nonexclusive, and FRANCHISEE, SNELLING, and other SNELLING franchisees may at
any time advertise, solicit, service and/or employ any CLIENTS, JOB-SEEKERS,
EMPLOYEES, or personnel, wherever located worldwide, including the area in
which the PS is located. Further, SNELLING shall have the right to establish,
or authorize other persons to establish, other personnel service businesses
under the PROPRIETARY MARKS, or under any other marks, anywhere in the world,
regardless of proximity to the PS or any other personnel service business,
whether franchised or operated by SNELLING.
5(b) TERM
This AGREEMENT shall remain in effect until it is terminated (i) by FRANCHISEE
in accordance with Section 13(a) (Termination by FRANCHISEE), (ii) by SNELLING,
upon a default by FRANCHISEE, in accordance with Section 13(b) (Termination by
SNELLING for Failure to Cure Breach) or Section 13(c) (Termination by SNELLING
Without Opportunity to Cure Breach) or (iii) upon a change in CONTROL in
accordance with Section 12(c) (Conditions for Ownership Transfer) or Section
12(e) (Loss of Control).
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<PAGE> 11
5(c) USE OF SNELLING PROPERTY
FRANCHISEE is licensed to use the SNELLING PROPERTY and shall adopt and use the
SNELLING PROPERTY solely in accordance with this AGREEMENT and in the manner
prescribed by SNELLING in the MATERIALS or by SNELLING'S written notice.
5(d) OWNERSHIP BY SNELLING OF THE SNELLING PROPERTY
FRANCHISEE acknowledges and agrees that:
5(d)(1) SNELLING is the OWNER of all right, title and interest in and to the
SNELLING PROPERTY. Neither FRANCHISEE nor any OWNER shall contest the validity
of SNELLING'S rights in the SNELLING PROPERTY or take any other action that
would prejudice or interfere with the validity of SNELLING'S rights with
respect to the SNELLING PROPERTY. Nothing in this AGREEMENT shall give
FRANCHISEE any right, title, or interest in or to any of the SNELLING PROPERTY,
except the right to use the SNELLING PROPERTY in accordance with the terms and
conditions of this AGREEMENT.
5(d)(2) Any unauthorized use of the SNELLING PROPERTY shall constitute an
infringement of SNELLING'S rights in the SNELLING PROPERTY and a material event
of default hereunder. FRANCHISEE shall execute and provide SNELLING with all
documents and assistance SNELLING reasonably requests to fully vest and protect
SNELLING'S right, title and interest in and to the SNELLING PROPERTY.
5(d)(3) SNELLING reserves the right to substitute different PROPRIETARY MARKS
and DOMAIN NAMES for use in identifying the SYSTEM and the PS, if the current
PROPRIETARY MARKS or DOMAIN NAMES no longer can be used, or if SNELLING, in its
sole discretion, determines that substitution of different PROPRIETARY MARKS or
DOMAIN NAMES will be beneficial to the SYSTEM. In such event, SNELLING may
require FRANCHISEE, at FRANCHISEE's expense, to discontinue or modify
FRANCHISEE'S use of any of the PROPRIETARY MARKS or DOMAIN NAMES or to use one
or more additional or substitute PROPRIETARY MARKS or DOMAIN NAMES.
5(d)(4) Any improvements, enhancements, advertising or public relations
programs, marks or DOMAIN NAMES, inventions, or modifications of the SNELLING
PROPERTY developed or adopted by FRANCHISEE during the term of this AGREEMENT,
even if not authorized by SNELLING, which relate in any way to the operation of
the PS, shall be the exclusive property of SNELLING. FRANCHISEE hereby
expressly disclaims any right, title or interest therein. FRANCHISEE shall
immediately disclose any such improvement, enhancement, program, invention or
modification to SNELLING. Should SNELLING, at its sole discretion and expense,
elect to file for patent, copyright, domain name registration or similar
protection relating to any such improvement, enhancement, program, invention or
modification, FRANCHISEE shall execute such documents and provide SNELLING with
such information as SNELLING may reasonably request in order to perfect such
filing.
5(e) MODIFICATION OF PROPRIETARY MARKS
FRANCHISEE shall identify itself as a FRANCHISEE of SNELLING only as prescribed
or approved by SNELLING, shall use the PROPRIETARY MARKS without any prefix,
suffix, or additional words, symbols, or punctuation, and shall use no
different or additional name or mark. If the LAW requires different or
additional identification, FRANCHISEE shall use the PROPRIETARY Marks only with
modifications that SNELLING designates by written notice. FRANCHISEE shall use
no corporate, partnership, fictitious, trade, domain or other name without
SNELLING'S written approval.
5(f) INDEPENDENT CONTRACTOR
The parties to this AGREEMENT understand and agree that this AGREEMENT does not
create a fiduciary relationship between them, that FRANCHISEE is an independent
contractor, and that nothing in this AGREEMENT is intended to make either party
an agent, legal representative, subsidiary, joint venture, partner, employee,
joint employer or servant of the other for any purpose whatsoever. During the
term of this AGREEMENT, FRANCHISEE shall hold itself out to the public as an
independent contractor operating according to a franchise from SNELLING.
FRANCHISEE shall take the action necessary to do so, including exhibiting a
notice that it is operating independently in a conspicuous place at the PS
office, the content and form of which SNELLING reserves the right to specify in
the MATERIALS. It is understood and agreed that nothing in this AGREEMENT
authorizes FRANCHISEE or any PRINCIPAL OWNER to make any contract, agreement,
warranty or representation on SNELLING'S behalf or to incur any debt or
obligation in SNELLING'S name. SNELLING shall assume no liability for, or be
deemed liable under this AGREEMENT, as a result of any such action. Further, it
is understood and agreed that SNELLING shall not be liable for any act or
omission by FRANCHISEE or any PRINCIPAL OWNER in conducting the PS or for any
claim or judgment arising therefrom.
5(g) NOTICE OF LEGAL ACTION AND INDEMNIFICATION
FRANCHISEE shall immediately notify SNELLING of any infringement of or
challenge to FRANCHISEE's use of any PROPRIETARY MARK, of any claim by any
person of any rights in any PROPRIETARY MARK, or any legal, administrative,
regulatory,
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or governmental action or proceeding, including any alternative dispute
resolution proceedings, in which FRANCHISEE, SNELLING, the PS, the EMPLOYEES or
STAFF EMPLOYEES are named, or that is related to the SNELLING PROPERTY.
FRANCHISEE shall have no authority to accept service of process on behalf of
SNELLING. FRANCHISEE and each PRINCIPAL OWNER shall at all times indemnify and
hold SNELLING and its officers, directors, shareholders, partners, employees
and agents harmless from all claims, suits, demands, or other causes of action
which may arise against SNELLING by reason of the operation of the PS, the sale
of any services from the PS, FRANCHISEE'S breach of this AGREEMENT or any
covenant, warranty or representation hereunder, criminal wrongs, or civil
wrongs connected with the operation of the PS, or the use of SNELLING'S name,
or the SNELLING PROPERTY or the acts or omissions of FRANCHISEE's agents,
employees or representatives without regard to the causes thereof or the
negligence of SNELLING or any other party or parties arising in connection
therewith whether such negligence be sole, joint or concurrent, active or
passive. This obligation to indemnify and hold harmless includes all attorneys'
fees, court costs, witness fees, expenses, alternative dispute resolution
costs, collection costs, actual damages, compensatory or exemplary damages,
damages to SNELLING's reputation and goodwill, and such other amounts incurred
in connection with such matters. SNELLING shall have the right to retain
separate legal counsel of its choice to represent its interests in such
matters, and the cost of such legal counsel shall be paid by FRANCHISEE. At the
expense and risk of FRANCHISEE and each of the PRINCIPAL OWNERS, SNELLING may
elect to assume (but under no circumstance is obligated to undertake) the
defense and/or settlement of any such action, suit, proceeding, claim, demand,
inquiry or investigation. Such an undertaking by SNELLING shall, in no manner
or form, diminish the obligation of FRANCHISEE and each of the PRINCIPAL OWNERS
to indemnify the indemnified parties and to hold them harmless.
5(h) EMPLOYEES AND CLIENTS
FRANCHISEE acknowledges and agrees that the EMPLOYEES shall be solely the
employees of SNELLING and not of FRANCHISEE and that all CLIENTS who receive
services through the PS shall be solely the clients of SNELLING and not of
FRANCHISEE. All FIELD EMPLOYEE and LEASED EMPLOYEE services provided through
the PS shall be provided by individuals who are employees of SNELLING and not
of FRANCHISEE. SNELLING reserves the right, in its sole discretion, to refuse
to (i) employ any individual referred by FRANCHISEE who does not meet the
qualifications and standards specified by SNELLING in the MATERIALS, (ii) allow
FRANCHISEE to dispatch an EMPLOYEE to any job assignment or order due to any
adverse economic or safety reasons or for any CLIENT who has failed to make
payments for services to SNELLING on a timely basis, (iii) provide LEASED
EMPLOYEES to a CLIENT who has not advanced to SNELLING the PAYROLL and related
costs for such LEASED EMPLOYEES and (iv) enter into an agreement for LEASED
EMPLOYEES if the anticipated gross margin with respect thereto would not, in
SNELLING'S sole determination, fairly compensate SNELLING for providing
processing and accounting services with respect thereto.
6. START-UP AND TRAINING
6(a) OPENING
Within ninety (90) days after the date this AGREEMENT is executed by SNELLING,
FRANCHISEE shall open and begin to operate the PS, unless SNELLING otherwise
agrees in writing.
6(b) LOCATION AND LEASE
Prior to acquiring a site for the LOCATION, FRANCHISEE shall find a site that
satisfies SNELLING'S site selection requirements for a personnel services
business and shall submit information regarding such site to SNELLING for its
approval. SNELLING shall have thirty (30) days to approve or disapprove a site.
No site may be used without SNELLING'S written approval. The street address of
the site approved by SNELLING for the LOCATION shall be set forth in Attachment
2. If FRANCHISEE will occupy the premises by lease, FRANCHISEE shall submit a
copy of the lease to SNELLING for its review and approval prior to execution of
the lease and shall furnish to SNELLING a copy of the executed lease within ten
(10) days after execution. No lease for the LOCATION may be used without
SNELLING'S written approval.
6(c) LISTINGS
Upon the execution of this AGREEMENT and at each time as a new LISTING is
obtained, FRANCHISEE shall assign to SNELLING the LISTINGS. FRANCHISEE shall
execute an assignment in the form prescribed by SNELLING to evidence such
assignments. Additionally, in order to further secure its obligations
hereunder, FRANCHISEE hereby grants to SNELLING a security interest in the
LISTINGS and shall execute such uniform commercial code financing statements as
SNELLING may request in order to perfect or continue perfection of such
security interest.
6(d) MANAGER TRAINING AND OPENING AND POST-OPENING TRAINING
SNELLING shall train at least one (1) PRINCIPAL OWNER approved by SNELLING and
the prospective MANAGER on the fundamentals of all aspects of operating the PS
at a place and time designated by SNELLING. The prospective initial MANAGER
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shall complete such training to SNELLING'S satisfaction prior to opening the PS
and any successor MANAGER shall complete such training to SNELLING's
satisfaction before FRANCHISEE may permit any such MANAGER to manage the PS.
Depending upon the type of PS and the PRINCIPAL OWNER'S and prospective
MANAGER'S prior experience, at least one (1) PRINCIPAL OWNER and the
prospective MANAGER may also be required to complete to SNELLING'S satisfaction
on the job training or opening and post-opening training provided by SNELLING'S
support personnel.
6(e) REMEDIAL TRAINING AND ASSISTANCE
SNELLING may, at its option, provide additional training and assistance to the
PRINCIPAL OWNERS and the MANAGER. At least one (1) PRINCIPAL OWNER, the MANAGER
and such other STAFF EMPLOYEES designated by SNELLING shall attend such
additional training and seminars as SNELLING may require from time to time.
SNELLING reserves the right to charge a reasonable fee for any such additional
training programs and seminars, and FRANCHISEE shall be responsible for all
payroll, travel, lodging meals, etc. of such STAFF EMPLOYEES.
6(f) TRAINING BY FRANCHISEE
FRANCHISEE shall immediately and continually train the EMPLOYEES and the STAFF
EMPLOYEES according to the SYSTEM. SNELLING shall have no responsibility to
train the EMPLOYEES or STAFF EMPLOYEES.
6(g) MATERIALS
SNELLING shall license for the sole use of FRANCHISEE one complete set of the
MATERIALS. All MATERIALS that exist now or that may be developed or licensed by
SNELLING shall remain the exclusive property of SNELLING. The MATERIALS shall
not be used by FRANCHISEE except in accordance with, and during the term of,
this AGREEMENT. Upon termination of this AGREEMENT, FRANCHISEE shall
immediately return to SNELLING all MATERIALS in FRANCHISEE'S possession.
7. CONFIDENTIAL INFORMATION.
7(a) TRADE SECRET
FRANCHISEE and each PRINCIPAL OWNER acknowledges, stipulates and agrees that
the CONFIDENTIAL INFORMATION, whether currently in existence or hereafter
acquired, constitutes a trade secret of SNELLING, is not a matter of common
knowledge in the trade, and gives FRANCHISEE, the PS and SNELLING an advantage
over other personnel service businesses, and any unauthorized use of the
CONFIDENTIAL INFORMATION by FRANCHISEE or any OWNER shall constitute unfair
business practices and a breach of confidence and a default under this
AGREEMENT. FRANCHISEE further acknowledges that in order to grant this
franchise SNELLING is relying upon the acknowledgment of FRANCHISEE and each
PRINCIPAL OWNER that CONFIDENTIAL INFORMATION constitutes a trade secret of
SNELLING and their promise to refrain from any unauthorized use of the
CONFIDENTIAL INFORMATION.
7(b) CONFIDENTIAL INFORMATION
The following information constitutes CONFIDENTIAL INFORMATION for purposes of
this AGREEMENT:
7(b)(i) the MATERIALS;
7(b)(ii) the identity of and any information regarding any past, current or
prospective JOB-SEEKER or FIELD EMPLOYEE, including such person's identity,
addresses, e-mail addresses, phone numbers (home, business and emergency),
curriculum vitae, resume, application, job references, various test results,
employment forms, current salary and benefits, salary expectations, employment
offers and terms thereof, responses to job offers, willingness to move/relocate
or commute, career goals, job performance and evaluations, reasons for leaving
last place of employment, job placements, work assignments, disciplinary
issues, medical information, drivers license, social security number, personal
financial data or needs and any other personnel information in which such
person has a reasonable expectation of privacy and/or which was disclosed to
FRANCHISEE, the PS and/or SNELLING in confidence;
7(b)(iii) the identity of and any information regarding any CLIENT, including
personal information (e.g. birthdays, anniversaries, spouse, hobbies,
memberships, likes and dislikes, personality, etc.), contact person(s), CLIENT
lists, personnel needs, fringe benefits, hiring practices, time lines and
budgets, policies, goals and plans, usage of EMPLOYEES, customer or CLIENT
pricing for various services and types of EMPLOYEES, existing or prospective
JOB-ORDERs and CLIENT agreements and dealings with FRANCHISEE, the PS and/or
SNELLING, including PLACEMENT BILLINGS, PAYROLL, CHARGEBACKS, REIMBURSEMENTS,
fees, expiration dates, profit margins and credit history;
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7(b)(iv) any information regarding FRANCHISEE'S business operations and
practices under the SYSTEM, including pricing and cost codes, marketing
techniques, strategic business plans and market research studies, promotional
ideas, operating reports, placement registers, and accounts receivable;
7(b)(v) the SYSTEM, SERVICE FILEs and any CLIENT and/or JOB-SEEKER lists,
including those prepared pursuant to Sections 13(d)(11) and (12) (FRANCHISEE's
Termination Duties);
7(b)(vi) any information regarding current or past EMPLOYEES or STAFF
EMPLOYEES, including the employee's personnel file, I-9's, W-4's, employment
agreements, employment history, assigned or generated CLIENTS, CLIENT
relationships and contacts, job placement history, commission structure,
compensation and benefits, performance evaluations, disciplinary history and
other proprietary personnel information or records;
7(b)(vii) any information, including a formula, pattern, compilations, program,
device, methods, technique, or process, that: (1) derives independent economic
value, actual or potential, from not being generally known to, and not being
readily ascertainable by proper means by, other persons who can obtain economic
value from its disclosure or use and (2) is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy; and
7(b)(viii) any other information known by FRANCHISEE or used in the PS that
could give FRANCHISEE an advantage over competitors, that is not disclosed to
the public by SNELLING or that is not generally known to the public.
7(c) NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
FRANCHISEE and each PRINCIPAL OWNER acknowledges that the Confidential
Information constitutes valuable trade secrets that SNELLING developed at
considerable cost, in which SNELLING owns the exclusive proprietary interest,
and of which FRANCHISEE and each PRINCIPAL OWNER further acknowledges that the
CONFIDENTIAL INFORMATION is received in strict confidence only by participants
in the SYSTEM and solely for their use and benefit in operating personnel
services businesses under the SYSTEM. FRANCHISEE and each OWNER having access
to the CONFIDENTIAL INFORMATION shall treat such information as confidential
and as trade secrets of SNELLING, shall not disclose their contents to
unauthorized persons or allow CONFIDENTIAL INFORMATION to leave the LOCATION,
and shall return all originals and copies thereof to SNELLING upon the
termination of this AGREEMENT. Neither FRANCHISEE nor any OWNER shall copy or
use the CONFIDENTIAL INFORMATION for any purpose other than as permitted by
this AGREEMENT and shall never disclose, use or misappropriate the CONFIDENTIAL
INFORMATION. FRANCHISEE acknowledges that any information provided by CLIENTS,
JOB-SEEKERS, and EMPLOYEES to FRANCHISEE is confidential because of
FRANCHISEE'S relationship with SNELLING, and any use of such information other
than for the operation of the PS is a breach of confidentiality.
7(d) PROTECTION OF CONFIDENTIAL INFORMATION.
During the term of this AGREEMENT, FRANCHISEE shall institute thorough and
effective measures to protect and preserve the secrecy of the CONFIDENTIAL
INFORMATION and to protect the CONFIDENTIAL INFORMATION from any unauthorized
use, disclosure or conversion by any person including the following
precautions:
7(d)(1) FRANCHISEE shall require and obtain execution of confidentiality and
non-disclosure agreements and covenants against unfair trade practices from its
MANAGER, and all other STAFF EMPLOYEES or agents who have received or will have
access to CONFIDENTIAL INFORMATION. Such agreements shall be in the form
prescribed by SNELLING and shall be executed as a condition of and before
commencement of employment. All officers, directors and OWNERS of FRANCHISEE
not required by SNELLING to execute this AGREEMENT who have received or have
access to CONFIDENTIAL INFORMATION also must execute such confidentiality and
non-disclosure agreements. FRANCHISEE shall forward a copy of the
confidentiality and non-disclosure agreements to SNELLING. FRANCHISEE shall not
reveal any CONFIDENTIAL INFORMATION to any MANAGER, OWNER, officer, director or
STAFF EMPLOYEE in the absence of a written obligation from such person not to
misuse or disclose the CONFIDENTIAL INFORMATION. FRANCHISEE shall consistently
and uniformly enforce its confidentiality and non-disclosure agreements with
such persons.
7(d)(2) FRANCHISEE shall permit access to the CONFIDENTIAL INFORMATION only to
those who have a need to know the information, maintain the CONFIDENTIAL
INFORMATION in a secure location and advise employees on a regular basis that
the CONFIDENTIAL INFORMATION is confidential. CONFIDENTIAL INFORMATION stored
on a computer hard drive or disk shall be protected from unauthorized access or
use by a secret password. CLIENT lists and SERVICE FILES shall be marked as
"Confidential," "Proprietary Information" or some similar designation and be
maintained in locked file cabinets or in a similar secured location.
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8. OPERATION OF THE PS
8(a) COMPLIANCE WITH LAW AND SYSTEM
FRANCHISEE shall strictly follow the SYSTEM and comply with all applicable LAW.
SNELLING will not, and properly could not, render legal, accounting, or tax
advice to FRANCHISEE. FRANCHISEE shall retain independent counsel as needed in
those areas.
8(b) TREATMENT OF PERSONNEL
FRANCHISEE and each PRINCIPAL OWNER shall take all steps necessary to ensure
that all applicants, JOB-SEEKERs, EMPLOYEES and STAFF EMPLOYEES are treated
fairly and equally as required under the MATERIALS or under applicable LAW
prohibiting discrimination and harassment with respect to race, creed, color,
religion, sex, national origin, age, handicap, status as a veteran, or any
other basis in the hiring, compensation, supervision, safety, training,
discharge, dispatching, or referral for placement of such persons in connection
with the operation of the PS.
8(c) REQUIRED INSURANCE
At its expense, FRANCHISEE shall procure upon execution of this AGREEMENT and
shall maintain crime/fidelity bond, commercial general liability, workers'
compensation, errors and omission and employment practices liability insurance
and any other insurance SNELLING may deem necessary protecting FRANCHISEE and
SNELLING and their respective affiliates, successors and assigns and each such
entity's officers, directors, partners, agents, representatives, independent
contractors and employees against any demand or claim with respect to personal
injury, death or property damage, or any loss, liability or expense arising or
occurring in connection with PS, unless such insurance is supplied by and
charged for by SNELLING, that conforms to the minimum amounts of coverage, and
special provisions required by the MATERIALS, as modified from time to time.
8(c)(1) The deductible on any required insurance coverage may not exceed Five
Hundred Dollars ($500) without SNELLING'S prior written approval. The coverage
shall be underwritten by insurance companies holding a Best's Rating of not
less than B+: Class VI, and shall be in forms acceptable to SNELLING.
8(c)(2) Such insurance shall name SNELLING and its officers, directors,
employees, representatives, independent contractors and agents as an additional
insured.
8(c)(3) FRANCHISEE shall provide SNELLING thirty (30) days prior to opening of
the PS, and thirty (30) days prior to the expiration of such policies,
certificates of insurance and other documents required by the MATERIALS
evidencing the existence and continuation of proper coverage. All insurance
policies shall expressly provide for no less than thirty (30) days written
notice to SNELLING in the event of a material alteration to or cancellation of
such policy.
8(c)(4) Should FRANCHISEE elect to enter into an arrangement to lease their
STAFF EMPLOYEES, the preceding insurance requirements must be maintained by the
leasing company without regard to any reinsurance commitments. In addition, the
leasing company must be properly licensed to do business and have satisfactory
financial resources as determined in SNELLING'S sole discretion.
8(c)(5) Such policies shall also include a waiver of subrogation in favor of
SNELLING and its directors, officers, employees, representatives, independent
contractors and agents. All public liability and property damage policies shall
contain a provision that SNELLING and its directors, officers, employees,
representatives, independent contractors and agents, although named as insured,
shall nevertheless be entitled to recover under such policies on any loss
occasioned to SNELLING or its servants, agents or employees by reason of the
negligence of FRANCHISEE or its servants, agents or employees.
8(c)(6) Should FRANCHISEE, for any reason, fail to procure or maintain the
insurance required by this AGREEMENT, as such requirements may be revised from
time to time by SNELLING in writing, SNELLING shall have the right and
authority (without, however, any obligation to do so) immediately to procure
such insurance and to charge same to FRANCHISEE, which charges, together with a
reasonable fee for SNELLING's expenses in so acting, shall be payable by
FRANCHISEE immediately upon notice. These remedies shall be in addition to any
other remedies SNELLING may have at law or in equity. FRANCHISEE's obligation
to obtain and maintain the foregoing policy or policies in the amounts
specified shall not be limited in any way by reason of any insurance which may
be maintained by SNELLING, nor shall FRANCHISEE's performance of that
obligation relieve it of liability under the indemnity provisions set forth in
Section 5(g) (Notice of Legal Action and Indemnification).
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8(d) INSURANCE PROGRAMS
SNELLING may, but is not required to, establish programs for the NETWORK for
any of the insurance coverages required for the PS. FRANCHISEE shall enroll and
maintain its participation in any such programs, if requested to do so by
SNELLING.
8(e) OUTSIDE CONSULTANTS
In order to protect the Confidential Information, FRANCHISEE shall not retain
any consultants or advisers in connection with the operation or marketing of
the PS, other than FRANCHISEE'S legal, accounting, or tax counsel, and
advertising or public relations agency, without SNELLING'S written approval.
8(f) FULL TIME MANAGEMENT
FRANCHISEE shall at all times have the PS managed by a MANAGER who devotes full
time, energy, and best efforts to the management, promotion, and growth of the
PS and maintains a presence at the LOCATION.
8(g) SUBMISSION OF REPORTS
FRANCHISEE shall submit to SNELLING the following reports in the manner, form,
time frame and content prescribed by SNELLING in the MATERIALS:
8(g)(1) marketing and financial report(s) for all of the operating activity of
the PS.
8(g)(2) an OVERRIDE report for RECEIPTS from PLACEMENT BILLINGS. This OVERRIDE
report shall be required only until SNELLING informs FRANCHISEE that SNELLING
shall process the BILLINGS and collection of RECEIPTS from PLACEMENT BILLINGS
for FRANCHISEE.
8(h) NO OTHER BUSINESS CONDUCTED AT LOCATION
FRANCHISEE shall ensure that no business other than the PS is conducted at the
LOCATION or is allowed to give the impression of a physical or operational
connection with the PS except that FRANCHISEE may permit, with SNELLING'S
approval, the activities of another FRANCHISEE to be conducted from the
LOCATION.
8(i) COMPLIANCE WITH MATERIALS
FRANCHISEE shall comply with the standards and requirements stated in the
MATERIALS, as modified by SNELLING from time to time, particularly those parts
of the MATERIALS that deal with:
8(i)(1) Utilization of new technology in the operation of the PS.
8(i)(2) Obtaining office decor, furniture, fixtures, electronic, mechanical and
communications equipment (including computer hardware, peripherals and
software, web pages, network connectivity, telephones, video conferencing
equipment, telecopiers, photocopiers, scanners, and modems), business forms,
and advertising materials (including Yellow Pages(R) and other business
directory ads) from SNELLING, sources SNELLING designates, or in accordance
with standards SNELLING specifies from time to time.
8(i)(3) Use of motivation and recognition programs, annual planning sessions,
and formal marketing plans.
8(i)(4) Use of STAFF EMPLOYEE training and improvement programs and written
employment contracts, and hiring the levels and type of STAFF EMPLOYEES
necessary to properly penetrate the market and grow market share.
8(i)(5) Handling of Job-seekers and the hiring and dispatching of EMPLOYEES.
8(i)(6) Performance of personnel related services for NATIONAL ACCOUNTS.
8(i)(7) Compliance with national programs, such as client satisfaction
guarantees, special hours incentive pay, holiday pay, vacation pay, referral
payments, and cooperative placement systems.
8(j) MODERNIZATION.
FRANCHISEE shall, upon the request of SNELLING, make other improvements to
modernize the PS premises, equipment, communications equipment, business forms
and advertising materials, office decor, fixtures, furnishings, supplies and
other products and materials required for the operation of the PS, to
SNELLING'S then-current standards and specifications.
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8(k) SNELLING may, but has no obligation to, develop NATIONAL ACCOUNTS with
whom SNELLING has entered into an agreement for the performance of personnel
related services within the area in which FRANCHISEE's PS is located. SNELLING
may offer the opportunity to perform those NATIONAL ACCOUNT services to
FRANCHISEE, SNELLING may perform those services or authorize any other party to
do so. If FRANCHISEE accepts the opportunity to perform the NATIONAL ACCOUNT
services, FRANCHISEE shall perform those services in accordance with the terms
of the NATIONAL ACCOUNT AGREEMENT.
9. DISTRIBUTION ACCOUNT AND PROCESSING
9(a) DISTRIBUTION ACCOUNT
9(a)(i) FRANCHISEE'S distribution payments from the DISTRIBUTION ACCOUNT will
be initially based on BILLINGS but will be ultimately based on the collection
of such BILLINGS. FRANCHISEE will not be entitled to any distribution payments
on BILLINGS processed after termination of this AGREEMENT. Even though SNELLING
will handle the processing of BILLINGS and PAYROLL, FRANCHISEE understands and
agrees that FRANCHISEE shall be financially responsible for each of the
following charges, each of which will be deducted from the DISTRIBUTION
ACCOUNT: SERVICE FEES; PAYROLL; PAYROLL COSTS; INSURANCE COSTS; BENEFITS, sales
taxes and any other taxes; EXPENSE REIMBURSEMENTS; CHARGEBACKS; OVERRIDES;
PROMOTION FUND contributions; INTEREST; CLIENT REFUNDS; CO-OP SPLITS;
ADJUSTMENTS; indemnification of SNELLING and any other amounts due SNELLING
under this AGREEMENT.
9(a)(ii) SNELLING shall pay to FRANCHISEE the net positive amount in the
DISTRIBUTION ACCOUNT in accordance with the manner and time frames prescribed
in the MATERIALS. If the DISTRIBUTION ACCOUNT has a net negative balance,
FRANCHISEE shall, when notified in writing by SNELLING, pay to SNELLING within
five (5) days an amount necessary to bring the DISTRIBUTION ACCOUNT to at least
a zero balance. Failure to do so shall be a default under this AGREEMENT.
9(a)(iii) SNELLING may, at any time, set off and make payment from the
DISTRIBUTION ACCOUNT of any amounts owed by FRANCHISEE to SNELLING (including
penalties, interest, reasonable attorney's fees and costs of collection) or any
amounts owed to SNELLING by any entity related to or affiliated with
FRANCHISEE.
9(b) TRANSMISSION OF INFORMATION
FRANCHISEE shall transmit all information required by SNELLING for its
operational and financial reports, analysis and to process the PAYROLL and
BILLINGS in the form, manner and time frame as prescribed in the MATERIALS.
9(c) PROCESSING BY SNELLING
Upon receiving the information from FRANCHISEE as required by the MATERIALS.
SNELLING shall process the PAYROLL and BILLINGS (except that PLACEMENT BILLINGS
shall be processed by FRANCHISEE until written notification by SNELLING), pay
all EMPLOYEES for services rendered to CLIENTS, pay all PAYROLL COSTS, provide,
when available, all required insurance on EMPLOYEES and pay all INSURANCE
COSTS, pay all BENEFITS, receive payments from CLIENTS, calculate the
distribution due FRANCHISEE, and perform other similar functions relating to
such processing.
9(d) CREDIT AND COLLECTION
FRANCHISEE agrees to SNELLING'S credit and collection policy provided below and
to subsequent modifications of the procedures provided in the MATERIALS.
9(d)(1) COLLECTION
FRANCHISEE shall ensure that CLIENTS submit payments directly and promptly to
SNELLING (except that payments for PLACEMENT BILLINGS shall be submitted to
FRANCHISEE until written notification by SNELLING). SNELLING, in its sole
discretion, may also contact CLIENTS regarding the collection of BILLINGS due
from CLIENTS. All collection costs incurred by SNELLING, internally or
externally, shall be charged to FRANCHISEE as an ADJUSTMENT to the DISTRIBUTION
ACCOUNT.
9(d)(2) CLIENT PAYMENTS MADE DIRECTLY TO SNELLING
All RECEIPTS shall be remitted directly to SNELLING by CLIENTS. FRANCHISEE
shall not do anything whatsoever that would interfere with the CLIENTS making
payments directly to SNELLING. If RECEIPTS are received by FRANCHISEE,
FRANCHISEE shall neither deposit nor cash such RECEIPTS, but shall immediately
forward them to SNELLING. Failure to immediately remit to SNELLING any CLIENT
payments that may come into FRANCHISEE'S possession, including any amounts
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previously treated as CHARGEBACKS, may result in a suspension of all further
DISTRIBUTION ACCOUNT payments to FRANCHISEE until SNELLING receives such
payments. In addition, INTEREST shall accrue from the date FRANCHISEE received
such payments until they are received by SNELLING. Failure by FRANCHISEE to
remit such payments to SNELLING constitutes a conversion of SNELLING'S funds
for which this AGREEMENT and any other agreement with SNELLING may be
immediately terminated and for which FRANCHISEE may be subject to civil
remedies or criminal prosecution and sanctions by governmental authorities.
9(d)(3) ENDORSEMENT AUTHORITY
FRANCHISEE hereby authorizes and grants to SNELLING the power to accept,
endorse, and negotiate any CLIENT payments made inadvertently or improperly to
FRANCHISEE, FRANCHISEE'S agents, affiliates, or other persons associated with
the PS.
9(d)(4) CLIENT CREDIT AND APPROVAL
FRANCHISEE shall conduct, at its expense, credit checks on all proposed
CLIENTS. SNELLING shall reserve the right to conduct its own credit checks on
proposed CLIENTS on FRANCHISEE'S behalf and make ADJUSTMENTS to the
DISTRIBUTION ACCOUNT accordingly. Each CLIENT must be approved by SNELLING
before FRANCHISEE provides services to such CLIENT.
9(d)(5) CLIENT AGREEMENTS
FRANCHISEE shall not execute any written agreement with a CLIENT relating to
the providing of EMPLOYEES without obtaining SNELLING'S prior written approval.
9(d)(6) RELATED PARTIES
FRANCHISEE shall not transmit any information for processing pertaining to a
CLIENT in which FRANCHISEE or any OWNER has a financial or equity interest of
5% or more, without the prior written approval of SNELLING.
9(e) ACCURATE CLASSIFICATION OF EMPLOYEES FOR WORKERS' COMPENSATION
FRANCHISEE is responsible for the accurate classification of EMPLOYEES for
workers' compensation reporting and charge purposes. Any misclassifications or
claims and loss experience will result in an ADJUSTMENT. Any willful or
negligent misclassifications may result in termination of this AGREEMENT
without an opportunity to cure.
9(f) SECURITY INTEREST
As security for the advancement of monies to FRANCHISEE and for the payment of
fees and other amounts owed to SNELLING under this AGREEMENT, FRANCHISEE and
the PRINCIPAL OWNERS hereby convey to SNELLING a security interest in all of
their present and later acquired interests in contract rights, accounts
receivable, fixed assets, general intangibles, and all of their cash or
non-cash proceeds, as security for all of their present and future obligations
to SNELLING. FRANCHISEE or a PRINCIPAL OWNER, as applicable, shall execute one
or more financing statements, continuation statements, or other documents as
SNELLING deems necessary.
10. FEES AND FINANCIAL OBLIGATIONS
10(a) FRANCHISE FEE
In consideration of the franchise granted in this AGREEMENT, expense incurred
by SNELLING in entering into this AGREEMENT, and SNELLING'S lost or deferred
opportunity to franchise others, FRANCHISEE shall pay to SNELLING a franchise
fee of (i) $9,000 with respect to a STANDARD PS, payable as follows: $5,000
upon execution of this AGREEMENT and $4,000 prior to a PRINCIPAL OWNER
attending the initial training program, (ii) $13,000 with respect to a
SUBLEASED PS, payable as follows: $7,000 upon execution of this AGREEMENT and
$6,000 prior to a PRINCIPAL OWNER attending the initial training program or
(iii) $5,000 with respect to a SPECIALTY PS, payable as follows: $3,000 upon
execution of this AGREEMENT, and $2,000 prior to a PRINCIPAL OWNER attending
the initial training program. There is no franchise fee with respect to an
EXPANSION PS or a CONVERTED PS. Any portion of the franchise fee that has been
paid shall be nonrefundable.
10(b) TRAINING FEE AND EXPENSES
FRANCHISEE shall pay to SNELLING an initial training fee of (i) $12,000 prior
to attending an initial training program with respect to a STANDARD PS or a
SUBLEASED PS, (ii) $7,000 prior to attending an initial training program with
respect to a SPECIALTY PS, and (iii) $12,000, payable by an additional one
percent (1%) OVERRIDE until paid in full, with respect to an EXPANSION PS.
There is no initial training fee with respect to a CONVERTED PS. In addition,
FRANCHISEE shall pay to SNELLING the current charges required by SNELLING for
any additional training. FRANCHISEE shall also pay for the meals, lodging and
travel expenses of the PRINCIPAL OWNERS and any current or prospective MANAGERS
and other staff employees in connection with any training, seminars, or
conventions wherever held.
Page 18 of 32
<PAGE> 19
10(c) OVERRIDE
In partial consideration of the rights granted to FRANCHISEE by SNELLING under
this AGREEMENT, FRANCHISEE shall pay to SNELLING a 4 1/2% OVERRIDE on all
TEMPORARY HELP BILLINGS (which OVERRIDE will ultimately be adjusted based upon
the amount of TEMPORARY HELP BILLINGS actually collected) and a 7% OVERRIDE on
all RECEIPTS from PLACEMENT BILLINGS. There is no OVERRIDE on NATIONAL ACCOUNT
BILLINGS (See Section 10(e)(iii) (National Account Service Fee)). SNELLING will
deduct the OVERRIDE from the DISTRIBUTION ACCOUNT. Until SNELLING has
instituted the processing of RECEIPTS from PLACEMENT BILLINGS, FRANCHISEE shall
pay to SNELLING the OVERRIDE amounts due on RECEIPTS from PLACEMENT BILLING
with such payments to be received by SNELLING by the tenth day of the month
following the month in which the monies were collected.
10(d) PROMOTION FUND
SNELLING has established the PROMOTION FUND for the NETWORK which will be
maintained and administered by SNELLING or its designee. FRANCHISEE shall
contribute 1/2% of all TEMPORARY HELP BILLINGS (which contribution will
ultimately be adjusted baseD upon the amount of TEMPORARY HELP BILLINGS
actually collected) and 1% of all RECEIPTS from PLACEMENT BILLINGS to the
PROMOTION FUND. There is no contribution due the PROMOTION FUND on NATIONAL
ACCOUNT BILLINGS. SNELLING will deduct the contribution weekly from the
DISTRIBUTION ACCOUNT. Until SNELLING has instituted the processing of RECEIPTS
from PLACEMENT BILLINGS, FRANCHISEE shall pay the PROMOTION FUND contribution
due on RECEIPTS from PLACEMENT BILLINGS in the manner described in Section
10(c) (Override).
The PROMOTION FUND shall be used exclusively to pay for promotion of the
NETWORK and the SYSTEM and may be combined with similar funds maintained by
SNELLING. Any sums paid by FRANCHISEE to the PROMOTION FUND may be used to
defray SNELLING'S administrative costs and overhead as SNELLING may incur in
activities reasonably related to the administration or direction of the
PROMOTION FUND and advertising for franchisees and the SYSTEM. FRANCHISEE
agrees that the PROMOTION FUND may be used to satisfy any and all costs of
maintaining, administering, directing and preparing advertising (including,
without limitation, the cost of preparing and conducting television, radio,
magazine and newspaper advertising; campaigns; direct mail and outdoor
billboard advertising; public relations activities; employing advertising
agencies to assist therein; and costs and expenses of SNELLING'S personnel and
other departmental costs related to the PROMOTION FUND). FRANCHISEE may request
in writing a copy of the PROMOTION FUND's annual accounting. Personnel service
businesses operated by SNELLING and using the PROPRIETARY MARKS shall
contribute to the PROMOTION FUND on the same basis as franchisees. SNELLING
will direct all advertising, public relations, promotional programs, and
related activities, with sole discretion over the creative concepts, materials,
and media used in them and over their placement and allocation. In
administering the PROMOTION FUND, SNELLING and its designees assume no
obligation to spend money for FRANCHISEE in proportion to FRANCHISEE'S
contribution or to ensure that any particular franchisee benefits directly or
proportionally from the PROMOTION FUND. The PROMOTION FUND and its earnings
shall not otherwise inure to the benefit of SNELLING. The PROMOTION FUND is
operated solely as a conduit for collecting and expending the advertising fees
as outlined above. Money spent from the PROMOTION FUND shall be allocated on a
first in first out basis. Money remaining in the PROMOTION FUND on December 31
shall be used first in the subsequent year.
10(e) SERVICE FEES
10(e)(i) BASE SERVICE FEE
In consideration of the performance of certain processing, accounting and
funding services by SNELLING with respect to TEMPORARY HELP BILLINGS, and in
addition to the OVERRIDE, FRANCHISEE shall pay to SNELLING a BASE SERVICE FEE
calculated as a percentage of TEMPORARY HELP BILLINGS. The percentage shall be
based upon the cumulative gross amount of TEMPORARY HELP BILLINGS to that point
of the calendar year for the PS in accordance with the following schedule:
<TABLE>
<CAPTION>
========================================================================
TEMPORARY HELP BILLINGS OUR BASE SERVICE FEE
========================================================================
<S> <C>
First $500,000 4.00%
------------------------------------------------------------------------
Next $500,000 3.80%
------------------------------------------------------------------------
Next $500,000 3.60%
------------------------------------------------------------------------
Next $500,000 3.40%
------------------------------------------------------------------------
Next $500,000 3.20%
------------------------------------------------------------------------
Next $500,000 3.00%
========================================================================
</TABLE>
Any non-billed hours, excluding holiday pay, processed by SNELLING will be
considered TEMPORARY HELP BILLINGS at the pay rate of the appropriate FIELD
EMPLOYEE(s) for purposes of computing the BASE SERVICE FEE. In addition,
EXPENSE REIMBURSEMENTS paid to FIELD EMPLOYEES and any other compensation not
paid on an hourly basis will also be included as TEMPORARY HELP BILLINGS for
purposes of computing the BASE SERVICE FEE. The TEMPORARY HELP BILLINGS ranges
described
Page 19 of 32
<PAGE> 20
above shall automatically adjust to the nearest $1,000 effective January 1 of
each year to reflect the change in the United States Consumer Price Index for
All Urban Consumers - All U.S. Cities (1982-84 = 100) published by the
Department of Labor or such replacement index selected by SNELLING.
If the prime interest rate as published in the Wall Street Journal equals or
exceeds 12% at the end of a week, the percentages described in the immediately
preceding paragraph shall be increased by the applicable following additional
percentage beginning the subsequent week:
<TABLE>
<CAPTION>
========================================================================
ADDITIONAL BASE SERVICE FEE
PRIME INTEREST RATE
========================================================================
<S> <C>
Less than 12% 0%
------------------------------------------------------------------------
at least 12% but less than 14% .25%
------------------------------------------------------------------------
at least 14% but less than 16% .50%
------------------------------------------------------------------------
at least 16% but less than 18% .75%
------------------------------------------------------------------------
at least 18% but less than 20% 1.00%
------------------------------------------------------------------------
20% or more 1.25%
========================================================================
</TABLE>
10(e)(ii) NATIONAL ACCOUNT SERVICE FEE
In consideration of the performance of certain processing, accounting and
funding services by SNELLING, and in lieu of a BASE SERVICE FEE, PROMOTION FUND
contribution and OVERRIDE, FRANCHISEE shall pay to SNELLING a NATIONAL ACCOUNT
SERVICE FEE calculated as thirty percent (30%) of the GROSS MARGIN - NATIONAL
ACCOUNT BILLINGS of any NATIONAL ACCOUNT BILLINGS.
10(f) OTHER FINANCIAL OBLIGATIONS; SET-OFF
FRANCHISEE shall pay promptly and as required under this AGREEMENT any money
due SNELLING or its subsidiaries, affiliates, or designees (including money
owed under a separate promissory note, contract, or other obligation) and shall
have no right to withhold or set-off any amounts owed under this AGREEMENT
because of any other claim.
10(g) INTEREST
Past due amounts due SNELLING shall accrue INTEREST without waiver of any
rights of SNELLING.
11. RECORDKEEPING; REPORTING; AUDITS
11(a) DOCUMENTS AND INFORMATION
FRANCHISEE shall, at its expense, provide to SNELLING all documents and
information SNELLING deems necessary in order to implement and maintain this
AGREEMENT within the time frames, on the forms, and in a manner, including
electronic transmission, as prescribed by SNELLING. SNELLING shall have the
right to electronically collect such information.
11(b) RECORDKEEPING AND REPORTING
FRANCHISEE shall provide SNELLING immediate access to any information,
regardless of who possesses it, that relates in any way to the PS, including
access that allows SNELLING to electronically receive and/or collect such
information. FRANCHISEE agrees to timely prepare, preserve, and report full,
complete, and accurate books, records, and accounts of the PS in accordance
with generally accepted accounting principles and the MATERIALS.
11(c) FINANCIAL AUDITS
SNELLING, or its designated agent, has the right to examine or audit the PS to
verify the accuracy of the information reported. FRANCHISEE shall fully
cooperate with the individuals conducting such examinations or audits.
Ordinarily, SNELLING will pay its own costs associated with the examination or
audit. If, however, (i) FRANCHISEE delays by more than five (5) BUSINESS DAYs
the time for the required examination or audit; (ii) FRANCHISEE fails to
cooperate with SNELLING or its designated agent; (iii) FRANCHISEE'S financial
records require a substantial effort by SNELLING or its designated agent to be
placed in a condition readily conducive to audit; or (iv) the examination or
audit reveals unreported RECEIPTS or other financial liabilities to SNELLING
that total more than Two Thousand Five Hundred Dollars ($2,500), FRANCHISEE
shall be obligated to pay immediately all costs and fees associated with the
examination or audit.
Page 20 of 32
<PAGE> 21
11(d) COMPLIANCE AUDITS
If FRANCHISEE fails to comply with the MATERIALS, or otherwise commits a breach
of this AGREEMENT, SNELLING may perform an operational compliance audit of the
PS. FRANCHISEE shall be obligated to pay immediately all costs associated with
the audit. The performance of such an audit in no way waives or supersedes any
of SNELLING'S rights under this AGREEMENT.
11(e) USE OF INFORMATION
SNELLING may use all financial and operational information that it obtains
concerning the PS as SNELLING deems appropriate or as required by LAW.
12. OWNERSHIP STRUCTURE AND TRANSFER
12(a) DISCLOSURE OF OWNERSHIP STRUCTURE
FRANCHISEE shall at all times keep SNELLING informed in writing of the
OWNERSHIP INTEREST of all of its OWNERS and shall provide SNELLING copies of
all organizational documents and other materials or statements that SNELLING
may request in order to document the ownership structure of FRANCHISEE. The
initial ownership structure shall be set forth in Section 2 of this AGREEMENT.
FRANCHISEE shall provide a list of each OWNER who is not required to execute
this AGREEMENT as a PRINCIPAL OWNER. No OWNER shall have any interest in any
personnel service business other than the PS or another personnel service
business under license from SNELLING; provided, however, these requirements
shall not apply to the ownership of less than one percent (1%) of the equity
securities of a publicly-held corporation.
12(b) NO ALIENATION
Neither the FRANCHISEE nor any PRINCIPAL OWNER shall effect an OWNERSHIP
TRANSFER without SNELLING'S prior written consent. Any OWNERSHIP TRANSFER that
effects a change in CONTROL (other than an OWNERSHIP TRANSFER to an initial
OWNER or initial Manager that was contemplated and approved by SNELLING at the
time of execution of this AGREEMENT) shall result in the termination of this
AGREEMENT. FRANCHISEE and the PRINCIPAL OWNERS understand and acknowledge that
the rights and duties set forth in this AGREEMENT are personal to FRANCHISEE,
and that SNELLING has granted rights under this AGREEMENT in reliance on the
business skill, financial capacity and personal character of FRANCHISEE and the
PRINCIPAL OWNERS. Accordingly, except for a transfer for convenience of
ownership as provided in Section 12(c)(10) (Conditions for Ownership Transfer),
neither FRANCHISEE nor any PRINCIPAL OWNER, nor any successor or assign of
FRANCHISEE or any PRINCIPAL OWNER shall sell, assign, transfer, convey, give
away, pledge, mortgage or otherwise encumber any direct or indirect interest in
this Agreement.
12(c) CONDITIONS FOR OWNERSHIP TRANSFER
FRANCHISEE and each PRINCIPAL OWNER acknowledges that SNELLING has legitimate
reasons to evaluate the qualifications of potential transferees and to analyze
and critique the terms of their purchase contracts with FRANCHISEE and/or
PRINCIPAL Owners. FRANCHISEE and each PRINCIPAL OWNER also acknowledges that
SNELLING'S contact with potential transferees for the purpose of protecting its
business interests will not constitute improper or unlawful conduct. FRANCHISEE
and each PRINCIPAL OWNER expressly authorizes SNELLING to investigate any
potential transferee's qualifications, and to analyze and critique the proposed
purchase terms with the transferee. FRANCHISEE and each PRINCIPAL OWNER waives
any claim that action SNELLING takes in relation to a proposed transfer to
protect its business interests constitutes tortuous interference with
contractual or business relationships. SNELLING will not unreasonably withhold
its approval, except that SNELLING will not, under any circumstances, approve
an OWNERSHIP TRANSFER to any person or business entity that has an interest in
any personnel services business other than the PS or another personnel services
business licensed from SNELLING (excluding ownership of less than 1% of the
equity securities of a publicly held corporation). Further, SNELLING may
withhold approval to protect its business interests or if in SNELLING'S sole
judgment, after giving effect to such sale, the prospective FRANCHISEE would
have inadequate financial resources or capital to fully develop the PS.
Further, SNELLING may, in its sole discretion, require any or all of the
following as conditions of its approval:
12(c)(1) FRANCHISEE shall not be in breach of this AGREEMENT.
12(c)(2) FRANCHISEE shall obtain SNELLING'S discretionary approval of each
person seeking to become a PRINCIPAL OWNER. FRANCHISEE shall supply SNELLING
with all information it requires, including a personal interview of each such
person at SNELLING'S principal place of business at no expense to SNELLING.
12(c)(3) If the OWNERSHIP TRANSFER does not effect a change in CONTROL, each
new PRINCIPAL OWNER shall execute an agreement, in a form prescribed by
SNELLING, assuming, and agreeing to perform from the date of transfer, all
obligations, covenants and agreements of a PRINCIPAL OWNER hereunder.
Page 21 of 32
<PAGE> 22
12(c)(4) If the OWNERSHIP TRANSFER effects a change in CONTROL [except as
provided in Section 12(b) (No Alienation)], this AGREEMENT shall terminate and
the new franchisee (which may be FRANCHISEE) and each principal owner of the
new franchisee shall execute the then current form of franchise agreement in
use by SNELLING, the terms of which may differ from the terms of this
AGREEMENT, including, a higher percentage OVERRIDE, PROMOTION FUND
contribution, SERVICE FEE or other expenditure requirement and the new
franchisee shall pay the then-current initial franchise fee.
12(c)(5) If the OWNERSHIP TRANSFER effects a change in CONTROL, a new PRINCIPAL
OWNER may be required (in SNELLING'S sole discretion) to attend and complete to
SNELLING'S satisfaction the initial training program for PRINCIPAL OWNERs and
the franchisee executing the new franchise agreement shall agree to pay to
SNELLING the then-current training fee charged by SNELLING to new franchisees
for the type of personnel service business to be operated.
12(c)(6) FRANCHISEE shall pay a processing fee to SNELLING in the amount of One
Thousand Dollars ($1,000). SNELLING will waive the processing fee if the
transfer is to an OWNER'S spouse, parent, or child or to an existing PRINCIPAL
OWNER (and the transfer does not effect a change in Control).
12(c)(7) FRANCHISEE or the transferring PRINCIPAL OWNER, as applicable, shall
provide to SNELLING a copy of any buy/sell agreement or other instrument of
transfer at least thirty (30) days prior to the contemplated date of transfer,
and the transferee shall obtain SNELLING'S written approval of its terms before
effecting the transfer.
12(c)(8) The transferor and SNELLING shall execute a general mutual release in
a form satisfactory to SNELLING of any and all existing claims against the
transferor, SNELLING, and their respective affiliates, and the officers,
directors, shareholders, partners, agents, representatives, independent
contractors, servants and employees of each of them, in their corporate and
individual capacities, including claims arising under this AGREEMENT and under
any LAW.
12(c)(9) The transferee, at its expense, shall agree to renovate, modernize,
and otherwise upgrade the PS to conform to the then current standards and
specifications of the SYSTEM, and shall agree to complete the upgrading and
other requirements within the time period reasonably specified by SNELLING.
12 (c)(10) If the proposed transfer (i) is to a business entity formed solely
for the convenience of ownership and (ii) does not materially change the
OWNERSHIP INTEREST of all OWNERS, SNELLING's consent may be conditioned upon
any of the requirements set forth in Section 12(c), except that the
requirements set forth at Sections 12(c)(4), (5), (6), (7), (8) and (9) shall
not apply.
12(d) RIGHT OF FIRST REFUSAL
If FRANCHISEE or a PRINCIPAL OWNER wishes to accept a bona fide offer from
anyone to buy the PS or any OWNERSHIP INTEREST, SNELLING shall have the right
to purchase the PS or OWNERSHIP INTEREST substantially on the same terms within
thirty (30) days after SNELLING receives notice of the offer in a form
prescribed by SNELLING. SNELLING shall have the right to substitute cash for
any other consideration offered and to pay the entire discounted present value
of the purchase price at the time of closing. Any material change in the terms
of any offer prior to closing shall constitute a new offer subject to
SNELLING'S same right to purchase as in the case of an initial offer.
12(e) LOSS OF CONTROL
12(e)(1) CHANGE OF OWNERSHIP
When a change of CONTROL occurs because of the death, withdrawal, stock
redemption, incapacity, or other elimination of an Owner other than as a result
of a transfer as provided in Section 12(c) (Conditions for Ownership Transfer),
this AGREEMENT shall terminate ninety (90) days after the occurrence. Any time
before the termination, the remaining OWNERS and the successors, if any, of the
former OWNER may apply to SNELLING to license them to continue operating the
PS. SNELLING'S approval will not be unreasonably withheld, subject to the
operational history of the PS and satisfaction of SNELLING'S current personnel,
business, management, and financial criteria for licensing new franchisees.
12(e)(2) NEW FRANCHISE AGREEMENT
The new license, if granted, shall be granted under the then current form of
franchise agreement being offered by SNELLING to new franchisees and no
processing fee or initial franchise fee shall be payable for this transaction.
If, however, SNELLING determines, in its sole discretion, that training is
required, SNELLING reserves the right to require the new FRANCHISEE to pay to
SNELLING its current training fee. The terms of the new franchise agreement may
differ from the terms of this
Page 22 of 32
<PAGE> 23
AGREEMENT, including, a higher percentage OVERRIDE, PROMOTION FUND
contribution, SERVICE FEE or other expenditure requirement.
13. TERMINATION
13(a) TERMINATION BY FRANCHISEE
Provided FRANCHISEE is in compliance with all of the terms and conditions of
this AGREEMENT, FRANCHISEE may voluntarily terminate this AGREEMENT by giving
at least nine (9) months written notice to SNELLING, which notice, at
SNELLING's sole discretion, shall be irrevocable upon receipt by SNELLING. So
that SNELLING and the NETWORK may protect their goodwill and arrange to
continue service to CLIENTS, JOB-SEEKERs, and EMPLOYEES, the effective date of
FRANCHISEE'S termination shall be nine (9) months after SNELLING receives
FRANCHISEE'S notice or such later date specified in FRANCHISEE'S notice,
provided that if SNELLING or its designee purchases FRANCHISEE'S assets
pursuant to Section 13(a)(3), the effective date of termination shall be the
date of closing of such purchase and sale. SNELLING shall continue to be
entitled to all OVERRIDES, PROMOTION FUND contributions, SERVICE FEES and other
monies owed and accruing until FRANCHISEE'S termination is effective in
accordance with this Section and in compliance with this AGREEMENT.
13(a)(1) Upon, but not prior to, the effective date of termination, FRANCHISEE
shall cease operating the PS and comply with the post-termination obligations
contained in Section 13(d) (FRANCHISEE's Termination Duties) and Section 14
(Rules Governing Unfair Trade Practices).
13(a)(2) If FRANCHISEE ceases to operate the PS under the SYSTEM in accordance
with the terms of this AGREEMENT prior to the effective date of FRANCHISEE'S
termination in accordance with Section 13(a), FRANCHISEE shall compensate
SNELLING for the reasonable costs, expenses, and losses, of whatever nature or
kind, incurred by SNELLING in connection with such cessation, including costs
of soliciting, locating, qualifying and training a replacement franchisee, for
the loss of any EMPLOYEES or CLIENTS, and for the loss of revenue that SNELLING
would otherwise be receiving as a result of FRANCHISEE'S continued operation of
the PS until the effective date of FRANCHISEE'S termination as provided in
Section 13(a). The parties agree that such expenditures and losses may be
uncertain and difficult to ascertain and therefore agree that the compensation
specified herein reasonably represents such expenditures and losses and is not
a penalty. FRANCHISEE shall pay SNELLING an amount equal to the OVERRIDES,
PROMOTION FUND contributions, and SERVICE FEES that were due and payable for
the eighteen (18) month period immediately preceding the time FRANCHISEE ceased
operating the PS under the SYSTEM (or if the PS has not been operated for an
eighteen (18) month period, an amount equal to the average monthly amounts due
during the time the PS was operated multiplied by eighteen (18)). This Section
13(a)(3) shall not be construed as a sole election of remedies by SNELLING and
shall not prejudice SNELLING'S rights to pursue other remedies under this
AGREEMENT, including seeking injunctive relief for a violation of Section 7
(Confidential Information), Section 13(d) (FRANCHISEE's Termination Duties) and
Section 14 (Rules Governing Unfair Trade Practices), or damages for conversion
of EMPLOYEES under Section 14(g) (Employee Solicitation).
13(a)(3) Upon receipt by SNELLING of FRANCHISEE'S termination notice, SNELLING
or its designee shall have the right and option, exercisable at any time after
receipt of FRANCHISEE'S termination notice and prior to the effective date of
FRANCHISEE's termination of this AGREEMENT under Section 13(a), to purchase all
of FRANCHISEE'S assets, including all furniture, fixtures, signs, equipment and
inventory of the PS, upon the same terms and conditions set forth in Section
13(d)(9) (FRANCHISEE's Termination Duties), including the requirement of
FRANCHISEE to execute an asset purchase agreement and certain PRINCIPAL OWNERs
to execute a consulting agreement with SNELLING.
13(b) TERMINATION BY SNELLING FOR FAILURE TO CURE BREACH
Except as provided in Section 13(c) (Termination by SNELLING Without
Opportunity to Cure Breach), when FRANCHISEE receives written notice from
SNELLING that FRANCHISEE has failed to comply with the terms of this AGREEMENT,
as supplemented by the MATERIALS, it shall have ten (10) days to cure the
breach and to prove such cure to SNELLING. Cure of a breach must include
payment to SNELLING of a Two Hundred Seventy Dollar ($270) processing fee for
its legal, administrative, and other costs in issuing the written notice and
confirming the cure, which processing fee will increase Ten Dollars ($10.00) on
each January 1 subsequent to the date this AGREEMENT was approved and executed
by SNELLING. If any breach is not cured within ten (10) days, or such longer
period as the LAW may require or as SNELLING may permit in its written notice,
this AGREEMENT shall terminate without further notice to FRANCHISEE, effective
on the expiration of the cure period.
13(c) TERMINATION BY SNELLING WITHOUT OPPORTUNITY TO CURE BREACH
SNELLING may, at its option, terminate this AGREEMENT without affording
FRANCHISEE any opportunity to cure the breach, effective when FRANCHISEE
receives SNELLING'S written notice, after any of the following:
Page 23 of 32
<PAGE> 24
13(c)(1) The PS fails to open as required or is closed for five (5) consecutive
BUSINESS DAYs.
13(c)(2) The designated PRINCIPAL OWNER fails to complete MANAGER training to
the satisfaction of SNELLING, or the PS is operated without a MANAGER and
FRANCHISEE has not received SNELLING'S written notice approving a deadline for
the hiring, training, and approval of a successor MANAGER and for the interim
management of the PS.
13(c)(3) FRANCHISEE or any OWNER is convicted of, or pleads no contest to, a
felony, a crime involving moral turpitude, or any other crime or offense that
is reasonably likely, in SNELLING'S sole opinion, to adversely affect the
NETWORK or the SNELLING PROPERTY, or SNELLING'S interest in them.
13(c)(4) FRANCHISEE or any PRINCIPAL OWNER purports to transfer or transfers,
with or without remuneration, any of the assets of the PS, the SNELLING
PROPERTY, any rights or obligations under this AGREEMENT, or any interest in
FRANCHISEE without prior written approval of SNELLING.
13(c)(5) FRANCHISEE or any OWNER violates Section 7(c) (Non-Disclosure of
Confidential Information), Section 7(d) (Protection of Confidential
Information), Section 8(b) (Treatment of Personnel), Section 8(c) (Required
Insurance), Section 9(d) (Credit and Collection), Section 9(d)(2) (Client
Payments Made Directly to SNELLING), or Section 14 (Rules Governing Unfair
Trade Practices) or any confidentiality agreement and non-disclosure agreement
relating to the CONFIDENTIAL INFORMATION.
13(c)(6) FRANCHISEE or any OWNER uses in any unauthorized manner or discloses
to any unauthorized party, any of the SNELLING PROPERTY (including SNELLING'S
proprietary software).
13(c)(7) FRANCHISEE or any OWNER acts in any way inconsistent with being a
business separate from SNELLING; commits any unauthorized acts involving
SNELLING; commits any act or pursues any course of conduct that brings the
SYSTEM, the NETWORK, or the PROPRIETARY MARKS into disrepute; disrupts any
function or event of the NETWORK, such as meetings, training sessions or
conventions; participates in any fraudulent activity, including any fraudulent
reporting of financial or operational information to SNELLING; or willfully or
negligently misclassifies EMPLOYEES for worker's compensation reporting and
charge purposes.
13(c)(8) FRANCHISEE or any PRINCIPAL OWNER commits two (2) material breaches
under this AGREEMENT within a twelve (12) month period, whether or not such
breaches are of the same or different nature and whether or not such breaches
have been cured by FRANCHISEE after written notice by SNELLING.
13(c)(9) FRANCHISEE or any PRINCIPAL OWNER loses legal control of the assets,
business affairs, or freedom of action with respect to the PS.
13(c)(10) FRANCHISEE permits EMPLOYEES to perform services or to be employed in
job classifications that are prohibited in the MATERIALS or otherwise by
SNELLING.
13(d) FRANCHISEE'S AND OWNERS' TERMINATION DUTIES
If this AGREEMENT terminates, voluntarily or involuntarily, for any reason,
FRANCHISEE and the OWNERS, to the extent permitted by LAW, shall immediately
and expeditiously:
13(d)(1) Stop using all SNELLING PROPERTY and all other unlicensed marks of
SNELLING or any variation or colorable imitation of them, and refrain from
identifying itself as a member or former member of the NETWORK.
13(d)(2) Cancel all filings or authorizations to operate under the PROPRIETARY
MARKS, DOMAIN NAMES or any colorable imitation of them pursuant to a fictitious
name statute or any similar statute.
13(d)(3) Remove all signs bearing PROPRIETARY MARKS, DOMAIN NAMES or other
identifications related to the SYSTEM.
13(d)(4) Deliver to SNELLING, at FRANCHISEE'S expense, all originals and copies
of the SNELLING PROPERTY and FRANCHISEE shall not make, retain, or thereafter
use any copy thereof.
13(d)(5) Comply with the provisions of Section 14 (Rules Governing Unfair Trade
Practices).
13(d)(6) Pay in full all liabilities of the PS, including, rent, telephone,
leases, salaries, vendors, and other claims.
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13(d)(7) Cease using all LISTINGS, execute all forms and documents required by
SNELLING and any service provider at any time to transfer such service and any
related LISTINGS to SNELLING, and refrain from entering any "call forwarding"
or similar instruction with a service provider that has the effect of
circumventing the unconditional obligation of FRANCHISEE to surrender and cease
using all LISTINGS. Upon termination SNELLING shall have the immediate right to
such LISTINGS and to have such service transferred to SNELLING. Notwithstanding
Attachment 6 and the uniform commercial code financing statement and any forms
and documents which may have been previously executed by FRANCHISEE under
Section 6(c) (Listings), FRANCHISEE hereby appoints SNELLING its true and
lawful agent and attorney-in-fact with full power and authority, for the sole
purpose of taking such action as is necessary to complete such assignment. The
obligations of this paragraph and this power of attorney shall survive the
termination of this AGREEMENT. FRANCHISEE and the OWNERS shall not thereafter
use the LISTINGS at or in connection with any subsequent business owned or
operated by FRANCHISEE or any OWNER.
13(d)(8) If the LOCATION is leased to FRANCHISEE, at SNELLING'S option, assign
any interest FRANCHISEE has in any lease or sublease for the LOCATION to
SNELLING or its designee upon SNELLING'S written notice. SNELLING may exercise
this option within thirty (30) days after termination of this AGREEMENT.
FRANCHISEE shall remain liable for all obligations arising prior to the date of
the assignment. If SNELLING does not elect to, or is unable to exercise this
option, FRANCHISEE shall make such modifications to the premises necessary to
distinguish it from any personnel services business operating under the SYSTEM.
If FRANCHISEE fails or refuses to comply with this Section, SNELLING shall have
the right to enter the LOCATION, without being guilty of any crime or tort, to
make or cause to be made the changes necessary, at FRANCHISEE'S expense, which
FRANCHISEE agrees to pay upon demand.
13(d)(9) At SNELLING'S sole option, and on or before the thirtieth (30th) day
after the effective date of termination of this AGREEMENT, sell any or all of
its assets as designated by SNELLING, including any furniture, fixtures, signs,
equipment and inventory of the PS to SNELLING or its designee, at the lesser of
(i) fair market value or (ii) three (3) times FRANCHISEE'S annual pre-tax
earnings for the PS for its most recently completed fiscal year, computed in
accordance with generally accepted accounting principles. If the parties cannot
agree on a fair market value within thirty (30) days from the date SNELLING
exercises its option, the fair market value of such assets shall be determined
by three qualified independent appraisers, one selected by SNELLING, the second
selected by FRANCHISEE and the third selected by the other two appraisers. If
SNELLING or its designee exercises the option to purchase FRANCHISEE'S assets,
FRANCHISEE shall execute and deliver to SNELLING an asset purchase agreement in
substantially the form set forth in the disclosure document described in
Section 16(h) to evidence the purchase and sale and the closing of such
purchase and sale shall occur within thirty (30) days from the date of notice
to FRANCHISEE of the election to purchase by SNELLING or its designee, or such
other date as the parties may agree. If SNELLING or its designee purchases
FRANCHISEE'S assets, SNELLING may require FRANCHISEE and/or its PRINCIPAL
OWNERS, to enter into a consulting agreement in substantially the form attached
to the asset purchase agreement as Exhibit A with SNELLING for the operation of
the PS for a period of up to six (6) months after the sale of the PS to
SNELLING or its designee. SNELLING or its designee shall be purchasing
FRANCHISEE'S assets only and shall be assuming no liabilities whatsoever,
unless SNELLING or its designee otherwise agrees in writing. SNELLING shall
have the right to deduct from the purchase price: (i) any sums owing, as of the
date of the closing, from FRANCHISEE and any of its affiliates to SNELLING and
any of its affiliates under or in connection with this AGREEMENT or any other
agreements between such entities and (ii) all reasonable expenses of SNELLING
incurred in negotiating and effecting the purchase of any of the assets
(including all attorneys' fees and other expenses).
13(d)(10) FRANCHISEE hereby acknowledges that all CLIENT ACCOUNTS are the
property of SNELLING and SNELLING may service or dispose of such CLIENT
ACCOUNTS in any manner it deems appropriate. FRANCHISEE shall additionally
deliver to SNELLING, in a form satisfactory to SNELLING, such documents and
instruments which SNELLING deems reasonably necessary in order to evidence
SNELLING'S ownership of CLIENT ACCOUNTS and to meet the requirements of all
taxing and other government authorities. For the purpose of this Section
13(d)(10), "CLIENT ACCOUNTS" includes all accounts or other established
business relationships with every third party to whom FRANCHISEE either is
providing or has at any time during the last two years provided or made
preparations to provide personnel services or related products or services.
13(d)(11) At least five (5) days prior to the effective date of the termination
of this AGREEMENT, provide SNELLING with a legible list identifying the names,
addresses, and telephone numbers of all CLIENTS serviced by the PS during the
two (2) years before the termination or that placed a JOB-ORDER for the
services offered by FRANCHISEE during the ninety (90) days before the
termination.
13(d)(12) At least five (5) days prior to the effective date of the termination
of this AGREEMENT, provide SNELLING with a legible list identifying the names,
addresses, and telephone numbers of all JOB-SEEKERs and EMPLOYEES used in or
contacted by FRANCHISEE or the PS during the two (2) years before the
termination.
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13(d)(13) Preserve forever in confidence all CONFIDENTIAL INFORMATION for the
benefit of SNELLING. All CONFIDENTIAL INFORMATION, whether developed by
FRANCHISEE or any OWNER in the operation of the PS or by SNELLING, shall remain
the exclusive property of SNELLING. FRANCHISEE shall never use, disclose, or
misappropriate, directly or indirectly, the CONFIDENTIAL INFORMATION to the
competitive disadvantage or economic injury of SNELLING and/or any successor
FRANCHISEE.
13(e) TRANSFER OF EMPLOYEES
SNELLING shall not be obligated to hire any STAFF EMPLOYEES. However, if
SNELLING requests a transfer of any STAFF EMPLOYEES within thirty (30) days
after termination of this AGREEMENT, FRANCHISEE shall discharge and not rehire
any STAFF EMPLOYEE designated by SNELLING, if SNELLING or SNELLING'S designee
has extended an offer to hire that person on comparable terms. FRANCHISEE shall
then assign the person's employment contracts to SNELLING or SNELLING'S
designee.
13(f) MONEY OWED
The termination of this AGREEMENT by FRANCHISEE, by SNELLING, or otherwise,
shall not release FRANCHISEE from its obligations, and all money due or owed
shall remain payable. All BILLINGS that have not been collected will
immediately be treated as CHARGEBACKS and no distribution amounts will be
available to FRANCHISEE unless the net DISTRIBUTION ACCOUNT balance
subsequently becomes positive, and no other amounts are due SNELLING. SNELLING
may for a reasonable period of time keep a reasonable reserve and use it to pay
CLIENT or applicant refunds, CO-OP SPLITS, and other legitimate bills of
FRANCHISEE in order to protect the NETWORK and the SYSTEM'S good name.
13(g) WAIVERS; COSTS OF BREACH
All waivers relating to this AGREEMENT shall be strictly construed. If
FRANCHISEE commits a breach of this AGREEMENT, as supplemented by the
MATERIALS, and SNELLING initiates any non-litigation activity or litigation
proceedings regarding the breach after FRANCHISEE has failed to cure it within
the cure period, if any, provided by this AGREEMENT, FRANCHISEE shall reimburse
SNELLING for all expenses, including all attorneys' fees, that SNELLING incurs
relating to the non-litigation activity or litigation proceedings. FRANCHISEE
shall also reimburse SNELLING for all court costs and attorneys' fees related
to all pretrial, trial court, appellate court, and alternative dispute
resolution proceedings.
13(h) MULTIPLE FRANCHISE AGREEMENTS
If an OWNER holds CONTROL in FRANCHISEE and holds CONTROL (determined as it
would be under this AGREEMENT) in another SNELLING franchisee, a breach of such
FRANCHISEE'S franchise agreement shall be a breach of this AGREEMENT.
13(i) CONTINUED EFFECT OF AGREEMENT
Provisions of this AGREEMENT that govern the parties' conduct after termination
shall continue in effect according to their terms after termination.
14. RULES GOVERNING UNFAIR TRADE PRACTICES
14(a) ACKNOWLEDGMENTS
FRANCHISEE and each PRINCIPAL OWNER acknowledges that they will receive or
develop valuable specialized training, trade secrets and CONFIDENTIAL
INFORMATION (including, without limitation, information about the SYSTEM'S
operations, sales, promotional and marketing methods and techniques) that are
beyond the present skills and experience of FRANCHISEE, PRINCIPAL OWNERS,
managers and personnel and that FRANCHISEE has the right and obligation,
arising from this AGREEMENT, to operate the PS for the benefit of the SYSTEM.
FRANCHISEE and each PRINCIPAL OWNER acknowledges that the training, trade
secrets and CONFIDENTIAL INFORMATION they receive or procure provide a
competitive advantage and are valuable to them in operating the PS and that
gaining access to such training, trade secrets and CONFIDENTIAL INFORMATION is
a primary reason why they are entering into this AGREEMENT. In consideration
for such training, trade secrets, CONFIDENTIAL INFORMATION and rights,
FRANCHISEE and each PRINCIPAL OWNER makes the covenants in this Section 14.
FRANCHISEE and each PRINCIPAL OWNER acknowledges and agrees that SNELLING is
relying on the acknowledgments and covenants herein and SNELLING would not have
entered into this AGREEMENT without such acknowledgments and covenants.
14(b) NO COMPETITION DURING TERM OF THIS AGREEMENT
During the term of this AGREEMENT, including the period after any termination
notice is given in accordance with Section 13(a) (Termination by FRANCHISEE),
and, with respect to each PRINCIPAL OWNER, during the term of this AGREEMENT
for so long as such individual or entity remains a PRINCIPAL OWNER, neither
FRANCHISEE nor any PRINCIPAL OWNER shall directly or indirectly own, conduct,
operate, organize, work for, or associate with any personnel services business
located within the United
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States, its territories or commonwealths, or any other country, province, state
or geographical area in which SNELLING has used, sought registration of or
registered the same or similar PROPRIETARY MARKS or operates or licenses others
to operate a business under the same or similar PROPRIETARY MARKS, unless such
personnel services business is licensed by SNELLING, or otherwise approved by
SNELLING in writing. This Section 14(b) shall not apply to the ownership of
less than one percent (1%) of the equity securities of a publicly-held
corporation.
14(c) POST-TERMINATION UNFAIR COMPETITION AND UNFAIR TRADE PRACTICES
Except as otherwise provided in any asset purchase agreement executed pursuant
to Section 13(d)(9) (FRANCHISEE's Termination Duties), upon termination of this
AGREEMENT with respect to FRANCHISEE, and upon the earlier of (i) the
termination of this AGREEMENT or (ii) the time such individual ceases to be a
PRINCIPAL OWNER with respect to each PRINCIPAL OWNER, FRANCHISEE or any
PRINCIPAL OWNER may operate a personnel service business so long as FRANCHISEE
or any PRINCIPAL OWNER complies with the terms set forth below. FRANCHISEE and
each PRINCIPAL OWNER acknowledges and agrees that noncompliance with these
terms would constitute unfair trade practices.
14(c)(1) The former FRANCHISEE or PRINCIPAL OWNER(S), as applicable, shall not,
directly or indirectly, without the express written consent of SNELLING, either
as an individual, counselor, recruiter, consultant, employee, officer,
director, or shareholder or in any other capacity, use in any manner any part
of the SNELLING PROPERTY, including the use of any CONFIDENTIAL INFORMATION to
do any of the acts set forth in Section 14(c)(4).
14(c)(2) The former FRANCHISEE or PRINCIPAL OWNER, as applicable, shall deliver
to SNELLING the lists described in Sections 13(d)(11) and (12) (FRANCHISEE's
Termination Duties), and shall retain a copy thereof for the sole purpose of
complying with Section 14(c)(4).
14(c)(3) The former FRANCHISEE or PRINCIPAL OWNER, as applicable, shall comply
with the termination duties as provided in Section 13 (FRANCHISEE's Termination
Duties).
14(c)(4) For a period of two years (i) after the termination of this AGREEMENT
with respect to FRANCHISEE and (ii) after the earlier of the termination of
this AGREEMENT or the time such individual ceases to be a PRINCIPAL OWNER with
respect to each PRINCIPAL OWNER, neither the FRANCHISEE or former PRINCIPAL
OWNER shall, directly or indirectly, for themselves or through, on behalf of or
in conjunction with any person or business entity do any of the following:
14)(c)(4)(i) operate any personnel service business at a location that is
within a one (1) mile radius from the LOCATION, or any other location at which
a SNELLING personnel services business was ever operated in which FRANCHISEE or
PRINCIPAL OWNER, as applicable, had an interest;
14(c)(4)(ii) hire or seek to hire any EMPLOYEE or STAFF EMPLOYEE of the PS,
SNELLING and/or any successor franchisee or in any other manner attempt,
directly or indirectly, to influence, induce or encourage any EMPLOYEE or STAFF
EMPLOYEE to leave the employment of the PS, SNELLING and/or any successor
franchisee;
14(c)(4)(iii) contact or seek to contact or do business with any existing
CLIENT or individual or entity that was a CLIENT during the preceding two (2)
years;
14(c)(4)(iv) procure or attempt to procure, directly or indirectly, employment
for, or place a JOB-SEEKER or applicant that FRANCHISEE procured or attempted
to procure employment for, placed, or interviewed during the preceding two (2)
years;
14(c)(4)(v) refer or attempt to refer any JOB-SEEKER or other applicant for
employment on an existing or prospective JOB-ORDER that FRANCHISEE procured or
attempted to procure during the preceding two (2) years; or
14(c)(4)(vi) divert or attempt to divert, for FRANCHISEE's or PRINCIPAL OWNER'S
benefit, or for the benefit of another personnel service business, management
search consultant, or other recruitment firm, any JOB-ORDER in existence on the
date of the termination of this AGREEMENT or the date the PRINCIPAL OWNER
ceased to be a PRINCIPAL OWNER.
14(c)(5) If the FRANCHISEE or former PRINCIPAL OWNER commits a breach of
Section 14(c)(4), the two year period specified in Section 14(c)(14) shall be
tolled during the period of such breach.
14(c)(6) FRANCHISEE and each PRINCIPAL OWNER acknowledges that: the market for
personnel services businesses is competitive; no single entity dominates that
market; that the covenants described above prohibiting FRANCHISEE or the
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<PAGE> 28
PRINCIPAL OWNERS from contacting CLIENTS, JOB-SEEKERS, and EMPLOYEES, from
using CONFIDENTIAL INFORMATION, MATERIALS, software and any other elements of
the SYSTEM are not intended to and would not prevent or materially impair
FRANCHISEE or a PRINCIPAL OWNER, as applicable, from obtaining a livelihood in
the personnel services business after the termination of this AGREEMENT or the
time such individual ceases to be a PRINCIPAL OWNER, as applicable; and that
the requirement prohibiting FRANCHISEE or a PRINCIPAL OWNER from operating a
personnel service business at or within one (1) mile of the LOCATION or any
other location at which a SNELLING personnel services business was ever
operated in which FRANCHISEE or PRINCIPAL OWNER, as applicable, had an interest
is entirely reasonable and that such restriction will not prohibit or
materially impair FRANCHISEE or the PRINCIPAL OWNER, as applicable, from
working for or operating a personnel service business in any market they
choose.
14(d) INFORMATION REQUEST.
FRANCHISEE shall supply such information as SNELLING may request in order to
ascertain whether or not FRANCHISEE has complied with, or has violated, the
confidentiality covenants contained in this AGREEMENT. FRANCHISEE shall furnish
the requested information to SNELLING within a reasonable time but in no event
later than ten (10) days following FRANCHISEE'S receipt of such request.
14(e) INJUNCTIONS
FRANCHISEE and each OWNER acknowledges that a violation of any of the
provisions of this AGREEMENT, including Section 5 (The License Relationship),
Section 6(g) (Materials), Section 7 (Confidential Information), Section 12
(Ownership Structure and Transfer), Section 13(d) (FRANCHISEE's Termination
Duties) or Section 14 (Rules Governing Unfair Trade Practices), will cause
irreparable harm to SNELLING and the NETWORK. SNELLING shall have the right to
seek injunctive or declaratory relief to remedy any actual or threatened
violation of this AGREEMENT specifically including the equitable remedy of
specific performance.
14(f) INDIRECT CONDUCT
In this Section 14, "indirectly" includes any acts of FRANCHISEE, any OWNER or
their respective family members, household, officers, agents, servants,
employees, attorneys, estate, or heirs, and those persons in active concert or
participation with them, it being the intent of the parties that FRANCHISEE
and/or any OWNER may not perform any act indirectly which would be prohibited
if carried out directly by FRANCHISEE and/or any OWNER.
14(g) PERSONNEL SERVICE BUSINESS
In this Section 14, "personnel service business" includes any business as set
forth under the definition of PS in Section 4 (Definitions).
15. GENERAL LEGAL MATTERS
15(a) GOVERNING LAW
THIS AGREEMENT TAKES EFFECT UPON ITS ACCEPTANCE BY SNELLING IN THE STATE OF
TEXAS. TO PROMOTE CONSISTENCY WITHIN THE NETWORK, WITH RESPECT TO ALL CLAIMS,
CONTROVERSIES, DISPUTES OR ACTIONS RELATED TO THIS AGREEMENT OR THE
RELATIONSHIP CREATED THEREBY, THIS AGREEMENT AND ANY SUCH RELATED CLAIMS,
CONTROVERSIES, DISPUTES OR ACTIONS SHALL BE INTERPRETED, ENFORCED AND GOVERNED
BY THE LAW OF THE STATE OF TEXAS, WHICH LAW SHALL PREVAIL IN THE EVENT OF ANY
CONFLICT OF LAW, EXCEPT TO THE EXTENT GOVERNED BY THE UNITED STATES TRADEMARK
ACT OF 1946 ((LANHAM ACT, 15 U.S.C., SECTION 1501, ET SEQ.).
15(b) MEDIATION
SNELLING, FRANCHISEE AND ITS OWNERS AGREE TO SUBMIT ANY CLAIM, CONTROVERSY OR
DISPUTE ARISING OUT OF OR RELATING TO THIS AGREEMENT (AND ATTACHMENTS AND
RIDERS), OR THE RELATIONSHIP CREATED BY SUCH AGREEMENT TO NON-BINDING MEDIATION
PRIOR TO FILING SUCH CLAIM, CONTROVERSY OR DISPUTE IN ARBITRATION OR A COURT.
THE MEDIATION SHALL BE CONDUCTED THROUGH EITHER AN INDIVIDUAL MEDIATOR OR A
MEDIATOR APPOINTED BY A MEDIATION SERVICES ORGANIZATION OR BODY, EXPERIENCED IN
THE MEDIATION OF DISPUTES BETWEEN FRANCHISORS AND FRANCHISEES AGREED UPON BY
THE PARTIES AND, FAILING SUCH AGREEMENT WITHIN REASONABLE PERIOD OF TIME AFTER
EITHER PARTY HAS NOTIFIED THE OTHER OF ITS DESIRE TO SEEK MEDIATION OF ANY
CLAIM, CONTROVERSY OR DISPUTE (NOT TO EXCEED FIFTEEN (15) DAYS), THROUGH
J.A.M.S./ENDISPUTE OR ITS SUCCESSOR IN ACCORDANCE WITH ITS RULES GOVERNING
MEDIATION, AT SNELLING'S CORPORATE HEADQUARTERS. THE COSTS AND EXPENSES OF
MEDIATION, INCLUDING COMPENSATION AND EXPENSES OF
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THE MEDIATOR, SHALL BE BORNE BY THE PARTIES EQUALLY. IF THE PARTIES ARE UNABLE
TO RESOLVE THE CLAIM, CONTROVERSY OR DISPUTE WITHIN NINETY (90) DAYS AFTER THE
MEDIATOR HAS BEEN APPOINTED, THEN THE DISPUTE SHALL AUTOMATICALLY BE REFERRED
TO ARBITRATION UNDER SECTION 15(c) (ARBITRATION). NOTWITHSTANDING THE
FOREGOING, SNELLING MAY BRING AN ACTION (INCLUDING SPECIFIC PERFORMANCE) (1)
FOR MONIES OWED, (2) FOR INJUNCTIVE OR OTHER EXTRAORDINARY RELIEF, OR (3)
INVOLVING THE POSSESSION OR DISPOSITION OF, OR OTHER RELIEF RELATING TO, REAL
PROPERTY IN A COURT HAVING JURISDICTION AND IN ACCORDANCE WITH SECTION 15(d)
(VENUE), WITHOUT SUBMITTING SUCH ACTION TO MEDIATION.
15(c) ARBITRATION
15(c)(1) EXCEPT AS PROVIDED IN THIS AGREEMENT, SNELLING AND FRANCHISEE AGREE
THAT ANY CLAIM, CONTROVERSY OR DISPUTE ARISING OUT OF OR RELATING TO THE
FRANCHISE, FRANCHISEE'S OPERATION OF THE PS UNDER THIS AGREEMENT (AND
ATTACHMENTS AND RIDERS) INCLUDING, BUT NOT LIMITED TO, ANY CLAIM BY FRANCHISEE,
OR ANY OF THE OWNERS, OR PERSONS CLAIMING THROUGH AND ON BEHALF OF FRANCHISEE
OR THE OWNERS, CONCERNING THE ENTRY INTO, THE PERFORMANCE UNDER OR THE
TERMINATION OF THIS AGREEMENT, OR ANY OTHER AGREEMENT BETWEEN SNELLING, OR ITS
SUBSIDIARIES OR AFFILIATES, AND FRANCHISEE, ANY CLAIM AGAINST A PAST OR PRESENT
OFFICER, DIRECTOR, EMPLOYEE OR AGENT OF SNELLING, INCLUDING THOSE OCCURRING
SUBSEQUENT TO THE TERMINATION OF THIS AGREEMENT, THAT CANNOT BE AMICABLY
SETTLED AMONG THE PARTIES OR THROUGH MEDIATION SHALL, EXCEPT AS SPECIFICALLY
SET FORTH HEREIN AND IN SECTION 15(d) (VENUE), BE REFERRED TO ARBITRATION. THE
ARBITRATION SHALL BE CONDUCTED THROUGH AN ORGANIZATION OR BODY EXPERIENCED IN
THE ARBITRATION OF DISPUTES BETWEEN FRANCHISORS AND FRANCHISEES AGREED UPON BY
THE PARTIES, AND FAILING SUCH AGREEMENT WITHIN A REASONABLE TIME AFTER THE
DISPUTE HAS BEEN REFERRED FOR ARBITRATION (NOT TO EXCEED FIFTEEN (15) DAYS).
ARBITRATION SHALL BE CONDUCTED BY J.A.M.S./ENDISPUTE OR ITS SUCCESSOR IN
ACCORDANCE WITH THE RULES OF J.A.M.S./ENDISPUTE OR ITS SUCCESSOR, AS AMENDED,
EXCEPT THAT THE ARBITRATORS SHALL APPLY THE FEDERAL RULES OF EVIDENCE. IF SUCH
RULES ARE IN ANY WAY CONTRARY TO OR IN CONFLICT WITH THIS AGREEMENT, THE TERMS
OF THIS AGREEMENT SHALL CONTROL. ALL CLAIMS, CONTROVERSIES OR DISPUTES
INVOLVING FRANCHISEE MAY ONLY BE ARBITRATED ON AN INDIVIDUAL BASIS AND MAY NOT
BE CONSOLIDATED WITH ANY CLAIM, CONTROVERSY OR DISPUTE FOR OR ON BEHALF OF ANY
OTHER FRANCHISEE OR SUPPLIER.
15(c)(2) SNELLING AND FRANCHISEE SHALL EACH SELECT ONE ARBITRATOR. IF THE PARTY
UPON WHOM THE DEMAND FOR ARBITRATION IS SERVED FAILS TO SELECT AN ARBITRATOR
WITHIN FIFTEEN (15) DAYS AFTER THE RECEIPT OF THE DEMAND FOR ARBITRATION, THEN
THE ARBITRATOR SO DESIGNATED BY THE PARTY REQUESTING ARBITRATION SHALL ACT AS
THE SOLE ARBITRATOR TO RESOLVE THE CONTROVERSY AT HAND. THE TWO ARBITRATORS
DESIGNATED BY THE PARTIES SHALL SELECT A THIRD ARBITRATOR. IF THE TWO
ARBITRATORS DESIGNATED BY THE PARTIES FAIL TO SELECT A THIRD ARBITRATOR WITHIN
FIFTEEN (15) DAYS, THE THIRD ARBITRATOR SHALL BE SELECTED BY THE ORGANIZATION
AGREED UPON OR J.A.M.S./ENDISPUTE OR ANY SUCCESSOR THERETO, UPON APPLICATION BY
EITHER PARTY. ALL OF THE ARBITRATORS SHALL BE EXPERIENCED IN THE ARBITRATION OF
DISPUTES BETWEEN FRANCHISORS AND FRANCHISEES. THE ARBITRATION SHALL TAKE PLACE
AT SNELLING'S CORPORATE HEADQUARTERS. THE AWARD OF THE ARBITRATORS SHALL BE
FINAL AND JUDGMENT UPON THE AWARD RENDERED IN ARBITRATION MAY BE ENTERED IN ANY
COURT HAVING JURISDICTION THEREOF. THE ARBITRATORS SHALL BE REQUIRED TO SUBMIT
WRITTEN FINDINGS OF FACT AND CONCLUSIONS OF LAW WITHIN THIRTY (30) BUSINESS
DAYS FOLLOWING THE FINAL HEARING SESSION OF THE ARBITRATORS. THE COSTS AND
EXPENSES OF ARBITRATION MAY BE ENTERED IN ANY COURT HAVING JURISDICTION
THEREOF. THE COSTS AND EXPENSES OF ARBITRATION, INCLUDING COMPENSATION AND
EXPENSES OF THE ARBITRATORS, SHALL BE BORNE BY THE PARTIES AS THE ARBITRATORS
DETERMINE. EACH PARTY FURTHER AGREES THAT, UNLESS SUCH LIMITATION IS PROHIBITED
BY APPLICABLE LAW, NEITHER PARTY SHALL BE LIABLE FOR PUNITIVE OR EXEMPLARY
DAMAGES, AND THE ARBITRATORS SHALL HAVE NO AUTHORITY TO AWARD THE SAME.
15(c)(3) NOTWITHSTANDING THE ABOVE, THE FOLLOWING SHALL NOT BE SUBJECT TO
ARBITRATION:
15(c)(3)(i) DISPUTES AND CONTROVERSIES ARISING FROM THE SHERMAN ACT, THE
CLAYTON ACT OR ANY OTHER FEDERAL OR STATE ANTITRUST LAW;
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15(c)(3)(ii) DISPUTES AND CONTROVERSIES ARISING UNDER THE LANHAM ACT, AS NOW OR
HEREAFTER AMENDED, RELATING TO OWNERSHIP OR VALIDITY OF THE PROPRIETARY MARKS;
15(c)(3)(iii) FOR MONIES OWED; AND
15(c)(3)(iv) DISPUTES AND CONTROVERSIES RELATING TO ACTIONS TO OBTAIN
POSSESSION OF THE PREMISES OF THE PS UNDER LEASE OR SUBLEASE.
15(c)(4) IF SNELLING DESIRES TO SEEK SPECIFIC PERFORMANCE OR OTHER
EXTRAORDINARY RELIEF INCLUDING, BUT NOT LIMITED TO, INJUNCTIVE RELIEF UNDER
THIS AGREEMENT AND ANY AMENDMENTS THERETO THEN ANY SUCH ACTION SHALL NOT BE
SUBJECT TO ARBITRATION AND SNELLING SHALL HAVE THE RIGHT TO BRING SUCH ACTION
AS DESCRIBED IN SECTION 15(d) (VENUE).
15(c)(5) IN PROCEEDING WITH ARBITRATION AND IN MAKING DETERMINATIONS HEREUNDER,
THE ARBITRATORS SHALL NOT EXTEND, MODIFY OR SUSPEND ANY TERMS OF THIS AGREEMENT
OR THE REASONABLE STANDARDS OF BUSINESS PERFORMANCE AND OPERATION ESTABLISHED
BY SNELLING IN GOOD FAITH. NOTICE OF OR REQUEST TO OR DEMAND FOR ARBITRATION
SHALL NOT STAY, POSTPONE OR RESCIND THE EFFECTIVENESS OF ANY TERMINATION OF
THIS AGREEMENT.
15(d) VENUE
EXCEPT AS STATED ABOVE, WITH RESPECT TO ALL CLAIMS SET FORTH ABOVE IN SECTION
15(c) (ARBITRATION), OR WHICH AS A MATTER OF LAW OR PUBLIC POLICY CANNOT BE
SUBMITTED TO ARBITRATION, FRANCHISEE AND THE OWNERS HEREBY IRREVOCABLY SUBMIT
THEMSELVES TO THE JURISDICTION OF THE STATE COURTS AND THE FEDERAL DISTRICT
COURT WHERE SNELLING HAS ITS PRINCIPAL PLACE OF BUSINESS. FRANCHISEE AND THE
OWNERS HEREBY WAIVE ALL QUESTIONS OF PERSONAL JURISDICTION FOR THE PURPOSE OF
CARRYING OUT THIS PROVISION. FRANCHISEE AND THE OWNERS HEREBY AGREE THAT
SERVICE OF PROCESS MAY BE MADE UPON ANY OF THEM IN ANY PROCEEDING RELATING TO
OR ARISING OUT OF THIS AGREEMENT OR THE RELATIONSHIP CREATED BY THIS AGREEMENT
BY ANY MEANS ALLOWED BY SUCH STATE OR FEDERAL LAW. FRANCHISEE AND THE OWNERS
FURTHER AGREE THAT VENUE FOR ANY PROCEEDING RELATING TO OR ARISING OUT OF THIS
AGREEMENT OR THE RELATIONSHIP CREATED THEREBY SHALL BE THE COUNTY WHERE
SNELLING HAS ITS PRINCIPAL PLACE OF BUSINESS; PROVIDED, HOWEVER, WITH RESPECT
TO ANY ACTION (1) FOR MONIES OWED, (2) FOR INJUNCTIVE OR OTHER EXTRAORDINARY
RELIEF (INCLUDING SPECIFIC PERFORMANCE), OR (3) INVOLVING POSSESSION OR
DISPOSITION OF, OR OTHER RELIEF RELATING TO, REAL PROPERTY, SNELLING MAY BRING
SUCH ACTION IN ANY STATE OR FEDERAL DISTRICT COURT WHICH HAS JURISDICTION.
15(e) MUTUAL BENEFIT
EACH OF FRANCHISEE, THE PRINCIPAL OWNERS AND SNELLING ACKNOWLEDGES (i) THAT
EACH PARTY'S AGREEMENT REGARDING APPLICABLE STATE LAW AND FORUM SET FORTH IN
SECTION 15(a) (GOVERNING LAW) AND SECTION 15(d) (VENUE) PROVIDE EACH OF THE
PARTIES WITH THE MUTUAL BENEFIT OF UNIFORM INTERPRETATION OF THIS AGREEMENT AND
ANY DISPUTE ARISING OUT OF THIS AGREEMENT OR THE PARTIES' RELATIONSHIP CREATED
BY THIS AGREEMENT, (ii) THE RECEIPT AND SUFFICIENCY OF MUTUAL CONSIDERATION FOR
SUCH BENEFIT AND (iii) THAT THE PROVISIONS REGARDING APPLICABLE STATE LAW AND
FORUM HAVE BEEN NEGOTIATED FOR IN GOOD FAITH AND ARE PART OF THE BENEFIT OF THE
BARGAIN REFLECTED BY THIS AGREEMENT. EACH OF FRANCHISEE, THE PRINCIPAL OWNERS
AND SNELLING ACKNOWLEDGE THAT THE EXECUTION OF THIS AGREEMENT AND ACCEPTANCE OF
THE TERMS BY THE PARTIES OCCURRED AT SNELLING'S PRINCIPAL PLACE OF BUSINESS,
AND FURTHER ACKNOWLEDGE THAT THE PERFORMANCE OF CERTAIN OBLIGATIONS OF
FRANCHISEE ARISING UNDER THIS AGREEMENT, INCLUDING, BUT NOT LIMITED TO, THE
PAYMENT OF MONIES DUE HEREUNDER, SHALL OCCUR WHERE SNELLING'S PRINCIPAL PLACE
OF BUSINESS IS LOCATED AT THE TIME SUCH OBLIGATION IS DUE.
15(f) AMENDMENTS TO FRANCHISE AGREEMENT
EXCEPT FOR THOSE AMENDMENTS PERMITTED TO BE MADE UNILATERALLY BY SNELLING
HEREUNDER, ANY CHANGES OR MODIFICATIONS TO THIS AGREEMENT, OR SPECIFIC WAIVERS
OF RIGHTS HEREUNDER, SHALL BE MADE ONLY IN WRITING EXECUTED BY AUTHORIZED
OFFICERS OR AGENTS OF FRANCHISEE AND SNELLING AND ATTESTED BY THE (ASSISTANT)
SECRETARY OF SNELLING. FRANCHISEE ACKNOWLEDGES THAT NO OFFICER, AGENT OR
EMPLOYEE OF SNELLING IS AUTHORIZED TO CHANGE OR MODIFY THIS
Page 30 of 32
<PAGE> 31
AGREEMENT VERBALLY AND THAT FRANCHISEE WILL NOT RELY ON CONVERSATIONS OR OTHER
COMMUNICATIONS WITH OFFICERS, AGENTS OR EMPLOYEES OF SNELLING RELATED TO ANY
CHANGE OR MODIFICATION OF THIS AGREEMENT.
15(g) NOTICES
Any notices required or permitted by this AGREEMENT shall be in writing and
shall be directed to SNELLING or FRANCHISEE at its respective last known
business address, delivered prepaid in one of the following ways: personally
delivered or mailed by expedited delivery service or certified or registered
mail, return receipt requested, first-class postage prepaid, or sent by prepaid
facsimile or telegram (provided that the sender confirms the facsimile or
telegram by sending an original confirmation copy by certified or registered
mail or expedited delivery service within three (3) BUSINESS DAYs after
transmission) to the respective parties. Any notice shall be deemed to have
been given (i) in the case of personal delivery, at the time of personal
delivery, (ii) in the case of facsimile or telegram, upon transmission
(provided confirmation is sent as described above) or (iii) in the case of
expedited delivery service or registered or certified mail, three (3) BUSINESS
DAYs after the date of mailing.
15(h) PARTIES BOUND; ASSIGNMENT BY SNELLING
This AGREEMENT binds FRANCHISEE and its heirs, executors, administrators,
successors, and assigns. SNELLING may assign this AGREEMENT in whole or in part
to any person or entity on written notice to FRANCHISEE.
15(i) SEVERABILITY
The provisions of this AGREEMENT are severable, it being the intention of the
parties that should any provision be found invalid, such invalidity shall not
affect the remaining provisions, which shall remain in full force and effect as
though such invalid provisions had not been contained herein.
15(j) ENTIRE AGREEMENT
This AGREEMENT, any Attachment hereto, and the documents referred to herein,
shall be construed together and constitute the entire, full and complete
agreement between SNELLING and FRANCHISEE and the PRINCIPAL OWNERS concerning
the subject matter hereof, and supersede all prior agreements. No other
representation has induced FRANCHISEE or the PRINCIPAL OWNERS to execute this
AGREEMENT, and there are no representations, inducements, promises or
agreements, oral or otherwise, between the parties not embodied herein, which
are of any force or effect with reference to this AGREEMENT or otherwise. No
amendment, change or variance from this AGREEMENT shall be binding on either
party unless executed in writing by both parties.
15(k) FORCE MAJEURE
If circumstances beyond the control of the parties make it impossible for
either or both of them to perform their obligations under this AGREEMENT, the
obligations will be suspended during the event of force majeure (acts of
nature, strikes, lockouts or other industrial disturbances, war, riot,
epidemic, fire or other catastrophe or other forces beyond FRANCHISEE'S
control), if through no fault of FRANCHISEE the premises are damaged or
destroyed by an event as described above; provided, that FRANCHISEE applies
within thirty (30) days after such event for SNELLING'S approval to relocate or
reconstruct the premises (which approval shall not be unreasonably withheld)
and FRANCHISEE diligently pursues such reconstruction or relocation Such
approval may be conditioned upon the payment of an agreed minimum fee to
SNELLING during the period in which the PS is not in operation.
15(l) RULES OF CONSTRUCTION
This AGREEMENT shall be interpreted as follows:
15(l)(1) Nouns, pronouns, and variations of them refer to the masculine,
feminine, neuter, singular, or plural as the context may require.
15(l)(2) Headings and their numbers are solely for convenience and ease of
reference.
15(l)(3) The word "including" means "including without limitation."
15(l)(4) When the words of a term defined in this AGREEMENT appear without
initial capital letters and bolding, they shall be given a generic, rather than
the defined interpretation.
Page 31 of 32
<PAGE> 32
16. ACKNOWLEDGMENTS AND REPRESENTATIONS
FRANCHISEE and each PRINCIPAL OWNER acknowledges and represents that:
16(a) prior to execution of this AGREEMENT, they investigated the SYSTEM to
their satisfaction and had the opportunity to consult with appropriate legal
and business advisors with respect to this AGREEMENT and the potential benefits
and risks of entering into this AGREEMENT;
16(b) they have not received and are not relying on any representations of any
kind from SNELLING that are not contained in this AGREEMENT or any other
currently effective written agreements executed by SNELLING and FRANCHISEE;
16(c) they understand that the market for personnel services is highly
competitive and that in any given market, the personnel service providers with
the largest market share may only control a small percent of such market, and,
to help SNELLING capture a larger market share, SNELLING may establish SNELLING
personnel services businesses anywhere in the world, including anywhere in the
market where the PS is located, and that FRANCHISEE may compete directly with
any other SNELLING personnel services business, and any other SNELLING
personnel services business may compete directly with FRANCHISEE, including the
solicitation of CLIENTS, JOB-SEEKERs, EMPLOYEES and STAFF EMPLOYEES;
16(d) they understand the significance of this provision and hereby confirm
that SNELLING has not made any representations of any kind concerning
FRANCHISEE'S potential success or earnings relating to the PS;
16(e) even though SNELLING will handle the processing of BILLINGS and PAYROLL,
they understand that FRANCHISEE'S success, level of success or failure will be
dependent on their own efforts and judgment, including their willingness to
invest and reinvest in the PS, their willingness to devote the necessary time
and effort to the operation of the PS, and their willingness and ability to
learn and follow the SYSTEM.
16(f) prior to execution of this AGREEMENT, they notified, in writing,
SNELLING'S Chief Legal Counsel of any information that any SNELLING employee
gave to them, other than the information contained in the disclosure document
described in Section 16(h), that may in any way be construed as relating to the
potential sales, gross revenues, distributions, earnings, income or operating
costs of any personnel service business under the SYSTEM or the PS in
particular;
16(g) they received a complete copy of this AGREEMENT and all related
Attachments and agreements at least five (5) BUSINESS Days prior to the date on
which this AGREEMENT was executed; and
16(h) they received the disclosure document required by the Trade Regulation
Rule of the Federal Trade Commission entitled "Disclosure Requirements and
Prohibitions Concerning Franchising and Business Opportunity Ventures" at least
ten (10) BUSINESS DAYs prior to the date on which this AGREEMENT was executed.
Page 32 of 32
<PAGE> 33
ATTACHMENT "1" TO FRANCHISE AGREEMENT
================================================================================
ADDENDUM TO SNELLING AND SNELLING, INC.
FRANCHISE AGREEMENT FOR THE STATE OF CALIFORNIA
This Addendum, which is executed in one or more original counterparts,
amends the Franchise Agreement between Snelling and Snelling, Inc.
("SNELLING"), a Pennsylvania corporation, having its principal place of
business at 12801 North Central Expressway, Suite 700, Dallas, Texas 75243,
and _____________________ ("FRANCHISEE"), by adding the following language,
which shall be an intergral part of the Franchise Agreement (the "Amendment"):
CALIFORNIA LAW MODIFICATIONS
1. The California Department of Corporations requires that certain
provisions contained in franchise documents be amended to be consistent with
California law, including the California Franchise Investment Law, CAL. BUS. &
PROF. CODE Section 31000 et seq., and the California Franchise Relations Act,
CAL. BUS. & PROF. CODE Section 20000 et seq. To the extent that the Agreement
contains provisions that are inconsistent with the following, such provisions
are hereby amended:
a. California Business and Professions Code Sections 20000 through 20043
provide rights to You concerning nonrenewal and termination of the
Agreement. The Federal Bankruptcy Code also provides rights to You
concerning termination of the Agreement upon certain bankruptcy-related
events. To the extent the Agreement contains a provision that is
inconsistent with these laws, these laws will control.
b. If the FRANCHISEE is required in the Agreement to execute a release of
claims, such release shall exclude claims arising under the California
Franchise Investment Law and the California Franchise Relations Act.
c. If the Agreement requires payment of liquidated damages that is
inconsistent with California Civil Code Section 1671, the liquidated
damage clause may be unenforceable.
d. If the Agreement contains a covenant not to compete which extends
beyond the expiration or termination of the Agreement, the covenant may
be unenforceable under California law.
e. If the Agreement requires litigation, arbitration, or mediation to be
conducted in a forum other than the State of California, the
requirement may be unenforceable under California law.
f. If the Agreement requires that it be governed by a state's law, other
than the State of California, such requirement may be unenforceable.
2. Each provision of this Amendment shall be effective only to the extent
that the jurisdictional requirements of the California law applicable to the
provision are met independent of this Amendment. This Amendment shall have no
force or effect if such jurisdictional requirements are not met.
FRANCHISEE and its Principal Owners have duly executed this Amendment to the
Franchise Agreement, approved and executed by SNELLING on _______, 19__.
FRANCHISEE
By:
-----------------------------
Name:
----------------------------
Title: President
ATTEST: SNELLING AND SNELLING, INC.
By:
- ----------------------------- -----------------------------
Name: Joseph G. Stover Name: Robert R. Paulk
Title: Assistant Secretary Title: Senior Vice President
CORPORATE SEAL OF SNELLING
OWNERSHIP
DATE PERCENTAGE PRINCIPAL OWNERS:
% (1)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (2)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (3)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (4)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
<PAGE> 34
ATTACHMENT "1" TO FRANCHISE AGREEMENT
================================================================================
ADDENDUM TO SNELLING AND SNELLING, INC.
FRANCHISE AGREEMENT FOR THE STATE OF HAWAII
This Addendum, which is executed in one or more original counterparts,
amends the Franchise Agreement between Snelling and Snelling, Inc.
("SNELLING"), a Pennsylvania corporation, having its principal place of
business at 12801 North Central Expressway, Suite 700, Dallas, Texas 75243,
and ___________________ ("FRANCHISEE"), by adding the following language, which
shall be an intergral part of the Franchise Agreement (the "Amendment"):
HAWAII LAW MODIFICATIONS
1. The Director of the Hawaii Department of Commerce and Consumer Affairs
requires that certain provisions contained in franchise documents be amended to
be consistent with Hawaii law, including the Hawaii Franchise Investment Law,
Hawaii Revised Statutes, Title 26, Chapter 482E-1 Through 482E-12 (1988). To
the extent that the Agreement contains provisions that are inconsistent with
the following, such provisions are hereby amended:
a. The Hawaii Franchise Investment Law provides rights to You concerning
nonrenewal, termination and transfer of the Agreement. If the
Agreement contains a provision that is inconsistent with the Law, the
Law will control. Among those rights, the law may require that upon
termination or nonrenewal SNELLING purchase for fair market value
FRANCHISEE's inventory, supplies, equipment and furnishings purchased
from SNELLING or a supplier designated by SNELLING; provided that
personalized materials which have no value to SNELLING need not be
compensated for. If the non-renewal or termination is for the purpose
of converting the FRANCHISEE's business to one owned and operated by
SNELLING, SNELLING may, additionally, be obligated to compensate the
FRANCHISEE for loss of goodwill. SNELLING may deduct all amounts due
from FRANCHISEE and any costs related to the transportation or
disposition of items purchased against any payment for those items. If
the parties cannot agree on fair market value, fair market value shall
be determined in the manner set forth in the Agreement. If the
Agreement does not provide for determination of the fair market value
of assets for purchase by SNELLING, such amount will be determined by
an independent appraiser approved by both parties, and the costs of the
appraisal shall be shared equally by the parties.
b. If the FRANCHISEE is required in the Agreement to execute a release of
claims, such release shall exclude claims arising under the Hawaii
Franchise Investment Law.
2. Each provision of this Amendment shall be effective only to the extent
that the jurisdictional requirements of the Hawaii Franchise Investment Law
applicable to the provision are met independent of this Amendment. This
Amendment shall have no force or effect if such jurisdictional requirements are
not met.
FRANCHISEE and its Principal Owners have duly executed this Amendment to the
Franchise Agreement, approved and executed by SNELLING on ______, 19__.
FRANCHISEE
By:
-----------------------------
Name:
----------------------------
Title: President
ATTEST: SNELLING AND SNELLING, INC.
By:
- ----------------------------- -----------------------------
Name: Joseph G. Stover Name: Robert R. Paulk
Title: Assistant Secretary Title: Senior Vice President
CORPORATE SEAL OF SNELLING
OWNERSHIP
DATE PERCENTAGE PRINCIPAL OWNERS:
% (1)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (2)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (3)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (4)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
<PAGE> 35
ATTACHMENT "1" TO FRANCHISE AGREEMENT
================================================================================
ADDENDUM TO SNELLING AND SNELLING, INC.
FRANCHISE AGREEMENT FOR THE STATE OF ILLINOIS
This Addendum, which is executed in one or more original counterparts,
amends the Franchise Agreement between Snelling and Snelling, Inc.
("SNELLING"), a Pennsylvania corporation, having its principal place of
and ________________ ("FRANCHISEE"), by adding the following language, which
shall be an intergral part of the Franchise Agreement (the "Amendment"):
ILLINOIS LAW MODIFICATIONS
1. The Illinois Attorney General's Office requires that certain provisions
contained in franchise documents be amended to be consistent with Illinois law,
including the Franchise Disclosure Act of 1987, Ill. Rev. Stat. ch. 815 para.
705/1 - 705/44 (1994). To the extent that this Agreement contains provisions
that are inconsistent with the following, such provisions are hereby amended:
a. Illinois Franchise Disclosure Act paragraphs 705/19 and 705/20 provide
rights to You concerning nonrenewal and termination of this Agreement.
If this Agreement contains a provision that is inconsistent with the
Act, the Act will control.
b. Any release of claims or acknowledgement of fact contained in Sections
16(d), 16(f) and 16(h) of the Agreement that would negate or remove
from judicial review any statement, misrepresentation or action that
would violate the Act, or a rule or order under the Act, shall be void
and are hereby deleted with respect to claims under the Act.
c. If this Agreement requires litigation to be conducted in a forum other
than the State of Illinois, the requirement is void under the Illinois
Franchise Disclosure Act.
d. If this Agreement requires that it be governed by a state's law, other
than the State of Illinois, to the extent that such law conflicts with
the Illinois Franchise Disclosure Act, the Act will control.
2. Each provision of this Amendment shall be effective only to the extent
that the jurisdictional requirements of the Illinois Franchise Disclosure Act,
with respect to each such provision, are met independent of this Amendment.
This Amendment shall have no force or effect if such jurisdictional
requirements are not met.
IN WITNESS WHEREOF, the FRANCHISEE and its Principal Owners have duly
executed this Amendment to the Franchise Agreement, approved and executed by
SNELLING on _____________, 19__.
FRANCHISEE
By:
-----------------------------
Name:
----------------------------
Title: President
ATTEST: SNELLING AND SNELLING, INC.
By:
- ----------------------------- -----------------------------
Name: Joseph G. Stover Name: Robert R. Paulk
Title: Assistant Secretary Title: Senior Vice President
CORPORATE SEAL OF SNELLING
OWNERSHIP
DATE PERCENTAGE PRINCIPAL OWNERS:
% (1)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (2)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (3)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (4)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
<PAGE> 36
ATTACHMENT "1" TO FRANCHISE AGREEMENT
================================================================================
ADDENDUM TO SNELLING AND SNELLING, INC.
FRANCHISE AGREEMENT FOR THE STATE OF INDIANA
This Addendum, which is executed in one or more original counterparts,
amends the Franchise Agreement between Snelling and Snelling, Inc.
("SNELLING"), a Pennsylvania corporation, having its principal place of
business at 12801 North Central Expressway, Suite 700, Dallas, Texas 75243,
and ______________ ("FRANCHISEE"), by adding the following language, which shall
be an intergral part of the Franchise Agreement (the "Amendment"):
INDIANA LAW MODIFICATIONS
1. The Indiana Securities Commissioner requires that certain provisions
contained in franchise documents be amended to be consistent with Indiana law,
including the Indiana Franchises Act, Ind. Code Ann. Sections 1 - 51 (1994)
and the Indiana Deceptive Franchise Practices Act, Ind. Code Ann. Section
23-2-2.7 (1985). To the extent that the Agreement contains provisions that are
inconsistent with the following, such provisions are hereby amended:
a. The Indiana Deceptive Franchise Practices Act provides rights to You
concerning nonrenewal and termination of the Agreement. To the extent
the Agreement contains a provision that is inconsistent with the Act,
the Act will control.
b. If the FRANCHISEE is required in the Agreement to execute a release of
claims or to acknowledge facts that would negate or remove from
judicial review any statement, misrepresentation or action that would
violate the Act, or a rule or order under the Act, such release shall
exclude claims arising under the Indiana Deceptive Franchise Practices
Act and the Indiana Franchises Act, and such acknowledgments shall be
void with respect to claims under the Acts.
c. If the Agreement contains covenants not to compete upon expiration or
termination of the Agreement that are inconsistent with the Indiana
Deceptive Franchise Practices Act, the requirements of the Act will
control.
d. The Indiana Deceptive Franchise Practices Act provides that substantial
modification of the Agreement by SNELLING requires written consent of
the FRANCHISEE. If the Agreement contains provisions that are
inconsistent with this requirement, the Act will control.
e. If the Agreement requires litigation to be conducted in a forum other
than the State of Indiana, the requirement may be unenforceable as a
limitation on litigation under the Indiana Deceptive Franchise
Practices Act Section 23-2-2.7(10).
f. If the Agreement requires that it be governed by a state's law, other
than the State of Indiana, to the extent that such law conflicts with
the Indiana Deceptive Franchise Practices Act and the Indiana
Franchises Act, the Acts will control.
2. Each provision of this Amendment shall be effective only to the extent
that the jurisdictional requirements of the Indiana Deceptive Franchise
Practices Act and the Indiana Franchises Act, with respect to each such
provision, ar met independent of this Amendment. This Amendment shall have no
force or effect if such jurisdictional requirements are not met.
FRANCHISEE and its Principal Owners have duly executed this Amendment to the
Franchise Agreement, approved and executed by SNELLING on _________, 19__.
FRANCHISEE
By:
-----------------------------
Name:
----------------------------
Title: President
ATTEST: SNELLING AND SNELLING, INC.
By:
- ----------------------------- -----------------------------
Name: Joseph G. Stover Name: Robert R. Paulk
Title: Assistant Secretary Title: Senior Vice President
CORPORATE SEAL OF SNELLING
OWNERSHIP
DATE PERCENTAGE PRINCIPAL OWNERS:
% (1)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (2)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (3)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (4)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
<PAGE> 37
ATTACHMENT "1" TO FRANCHISE AGREEMENT
================================================================================
ADDENDUM TO SNELLING AND SNELLING, INC.
FRANCHISE AGREEMENT FOR THE STATE OF MARYLAND
This Addendum, which is executed in one or more original counterparts,
amends the Franchise Agreement between Snelling and Snelling, Inc.
("SNELLING"), a Pennsylvania corporation, having its principal place of
business at 12801 North Central Expressway, Suite 700, Dallas, Texas 75243,
and _______________ ("FRANCHISEE"), by adding the following language, which
shall be an intergral part of the Franchise Agreement (the "Amendment"):
MARYLAND LAW MODIFICATIONS
1. The Maryland Securities Division requires that certain provisions
contained in franchise documents be amended to be consistent with Maryland law,
including the Maryland Franchise Registration and Disclosure Law, Md. Code
Ann., Bus. Reg. Sections 14-201 - 14-233 (1994). To the extent that this
Agreement contains provisions that are inconsistent with the following, such
provisions are hereby amended:
a. If the FRANCHISEE is required in this Agreement to execute a release of
claims or to acknowledge facts that would negate or remove from
judicial review any statement, misrepresentation or action that would
violate the Act, or a rule or order under the Act, such release shall
exclude claims arising under the Maryland Franchise Registration and
Disclosure Law, and such acknowledgments shall be void with respect to
claims under the Law.
b. If this Agreement requires litigation to be conducted in a forum other
than the State of Maryland, the requirement shall not be interpreted to
limit any rights FRANCHISEE may have under Sec. 14-216 (c)(25) of the
Maryland Franchise Registration and Disclosure Law to bring suit in the
state of Maryland.
2. Each provision of this Amendment shall be effective only to the extent
that the jurisdictional requirements of the Maryland Franchise Registration and
Disclosure Law, with respect to each such provision, are met independent of
this Amendment. This Amendment shall have no force of effect if such
jurisdictional requirements are not met.
FRANCHISEE and its Principal Owners have duly executed this Amendment to the
Franchise Agreement, approved and executed by SNELLING on _________, 19__.
FRANCHISEE
By:
-----------------------------
Name:
----------------------------
Title: President
ATTEST: SNELLING AND SNELLING, INC.
By:
- ----------------------------- -----------------------------
Name: Joseph G. Stover Name: Robert R. Paulk
Title: Assistant Secretary Title: Senior Vice President
CORPORATE SEAL OF SNELLING
OWNERSHIP
DATE PERCENTAGE PRINCIPAL OWNERS:
% (1)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (2)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (3)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (4)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
<PAGE> 38
ATTACHMENT "1" TO FRANCHISE AGREEMENT
================================================================================
ADDENDUM TO SNELLING AND SNELLING, INC.
FRANCHISE AGREEMENT FOR THE STATE OF MINNESOTA
This Addendum, which is executed in one or more original counterparts,
amends the Franchise Agreement between Snelling and Snelling, Inc.
("SNELLING"), a Pennsylvania corporation, having its principal place of
business at 12801 North Central Expressway, Suite 700, Dallas, Texas 75243,
and __________________ ("FRANCHISEE"), by adding the following language, which
shall be an intergral part of the Franchise Agreement (the "Amendment"):
MINNESOTA LAW MODIFICATIONS
1. The Commissioner of Commerce for the State of Minnesota requires that
certain provisions contained in franchise documents be amended to be consistent
with Minnesota Franchise Act, Minn. Stat. Section 80.01 et seq., and of the
Rules and Regulations promulgated under the Act (collectively the "Franchise
Act"). To the extent that the Agreement and Offering Circular contain
provisions that are inconsistent with the following, such provisions are hereby
amended:
a. The Minnesota Department of Commerce requires that SNELLING indemnify
Minnesota franchisees against liability to third parties resulting from
claims by third parties that the Franchisee's use of the Proprietary
Marks infringes trademark rights of the third party. SNELLING does not
indemnify against the consequences of FRANCHISEE's use of the
Proprietary Marks except in accordance with the requirements of the
Agreement, and, as a condition to indemnification, FRANCHISEE must
provide notice to SNELLING of any such claim within ten (10) days after
the earlier of (i) actual notice of the claim or (ii) receipt of
written notice of the claim, and must therein tender the defense of the
claim to SNELLING. If NEWT accepts the tender of defense, SNELLING has
the right to manage the defense of the claim including the right to
compromise, settle or otherwise resolve the claim, and to determine
whether to appeal a final determination of the claim. If the Agreement
contains a provision that is inconsistent with the Franchise Act, the
provisions of the Agreement shall be superseded by the Act's
requirements and shall have no force or effect.
b. Franchise Act, Sec. 80C.14, Subd. 4., requires, except in certain
specified cases, that a franchisee be given written notice of a
franchisor's intention not to renew 180 days prior to expiration of the
franchise and that the franchisee be given sufficient opportunity to
operate the franchise in order to enable the franchisee the opportunity
to recover the fair market value of the franchise as a going concern.
If the Agreement contains a provision that is inconsistent with the
Franchise Act, the provisions of the Agreement shall be superseded by
the Act's requirements and shall have no force or effect.
c. Franchise Act, Sec. 80C.14, Subd. 3., requires, except in certain
specified cases that a franchisee be given 90 days notice of
termination (with 60 days to cure). If the Agreement contains a
provision that is inconsistent with the Franchise Act, the provisions
of the Agreement shall be superseded by the Act's requirements and
shall have no force or effect.
d. If the FRANCHISEE is required in the Agreement to execute a release of
claims or to acknowledge facts that would negate or remove from
judicial review any statement, misrepresentation or action that would
violate the Franchise Act, such release shall exclude claims arising
under the Franchise Act, and such acknowledgments shall be void with
respect to claims under the Act.
e. If the Agreement requires that it be governed by a state's law, other
than the State of Minnesota or arbitration or mediation, those
provisions shall not in any way abrogate or reduce any rights of the
FRANCHISEE as provided for in the Franchise Act, including the right to
submit matters to the jurisdiction of the courts of Minnesota.
2. Each provision of this Agreement shall be effective only to the extent
that the jurisdictional requirements of the Minnesota law applicable to the
provision are met independent of this Amendment. This Amendment shall have no
force or effect if such jurisdictional requirements are not met.
FRANCHISEE and its Principal Owners have duly executed this Amendment to the
Franchise Agreement, approved and executed by SNELLING on ____________, 19__.
FRANCHISEE
By:
-----------------------------
Name:
----------------------------
Title: President
ATTEST: SNELLING AND SNELLING, INC.
By:
- ----------------------------- -----------------------------
Name: Joseph G. Stover Name: Robert R. Paulk
Title: Assistant Secretary Title: Senior Vice President
CORPORATE SEAL OF SNELLING
OWNERSHIP
DATE PERCENTAGE PRINCIPAL OWNERS:
% (1)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (2)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (3)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (4)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
<PAGE> 39
ATTACHMENT "1" TO FRANCHISE AGREEMENT
================================================================================
ADDENDUM TO SNELLING AND SNELLING, INC.
FRANCHISE AGREEMENT FOR THE STATE OF NEW YORK
This Addendum, which is executed in one or more original counterparts,
amends the Franchise Agreement between Snelling and Snelling, Inc.
("SNELLING"), a Pennsylvania corporation, having its principal place of
business at 12801 North Central Expressway, Suite 700, Dallas, Texas 75243,
and ______________ ("FRANCHISEE"), by adding the following language, which shall
be an intergral part of the Franchise Agreement (the "Amendment"):
NEW YORK LAW MODIFICATIONS
1. The New York Department of Law requires that certain provisions
contained in franchise documents be amended to be consistent with New York law,
including the General Business Law, Article 33, Sections 680 through 695
(1989). To the extent that the Agreement contains provisions that are
inconsistent with the following, such provisions are hereby amended:
a. If the FRANCHISEE is required in the Agreement to execute a release of
claims or to acknowledge facts that would negate or remove from
judicial review any statement, misrepresentation or action that would
violate the General Business Law, regulation, rule or order under the
Law, such release shall exclude claims arising under the New York
General Business Law, Article 33, Section 680 through 695 and the
regulations promulgated thereunder, and such acknowledgments shall be
void. It is the intent of this provision that non-waiver provisions of
Sections 687.4 and 687.5 of the General Business Law be satisfied.
b. If the Agreement requires that it be governed by a state's law, other
than the State of New York, the choice of law provision shall not be
considered to waive any rights conferred upon the FRANCHISEE under the
New York General Business Law, Article 33, Sections 680 through 695.
2. Each provision of this Amendment shall be effective only to the extent
that the jurisdictional requirements of the New York General Business Law, with
respect to each such provision, are met independent of this Amendment. This
Amendment shall have no force or effect if such jurisdictional requirements are
not met.
FRANCHISEE and its Principal Owners have duly executed this Amendment to the
Franchise Agreement, approved and executed by SNELLING on ___________, 19___.
FRANCHISEE
By:
-----------------------------
Name:
----------------------------
Title: President
ATTEST: SNELLING AND SNELLING, INC.
By:
- ----------------------------- -----------------------------
Name: Joseph G. Stover Name: Robert R. Paulk
Title: Assistant Secretary Title: Senior Vice President
CORPORATE SEAL OF SNELLING
OWNERSHIP
DATE PERCENTAGE PRINCIPAL OWNERS:
% (1)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (2)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (3)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (4)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
<PAGE> 40
ATTACHMENT "1" TO FRANCHISE AGREEMENT
================================================================================
ADDENDUM TO SNELLING AND SNELLING, INC.
FRANCHISE AGREEMENT FOR THE STATE OF NORTH DAKOTA
This Addendum, which is executed in one or more original counterparts,
amends the Franchise Agreement between Snelling and Snelling, Inc.
("SNELLING"), a Pennsylvania corporation, having its principal place of
business at 12801 North Central Expressway, Suite 700, Dallas, Texas 75243,
and _____________________ ("FRANCHISEE"), by adding the following language,
which shall be an intergral part of the Franchise Agreement (the "Amendment"):
NORTH DAKOTA LAW MODIFICATIONS
1. The North Dakota Securities Commissioner requires that certain
provisions contained in franchise documents be amended to be consistent with
North Dakota law, including the North Dakota Franchise Investment Law, North
Dakota Century Code Annotated Chapter 51-19, Sections 51-19-01 through 51-19-17
(1993). To the extent that the Agreement contains provisions that are
inconsistent with the following, such provisions are hereby amended:
a. If the FRANCHISEE is required in the Agreement to execute a release of
claims or to acknowledge facts that would negate or remove from
judicial review any statement, misrepresentation or action that would
violate the Law, or a rule or order under the Law, such release shall
exclude claims arising under the North Dakota Franchise Investment Law,
and such acknowledgments shall be void with respect to claims under the
Law.
b. Covenants not to compete during the term of and upon termination or
expiration of the Agreement are enforceable only under certain
conditions according to North Dakota Law. If the Agreement contains a
covenant not to compete which is inconsistent with North Dakota Law,
the covenant may be unenforceable.
c. If the Agreement requires litigation to be conducted in a forum other
than the State of North Dakota, the requirement is void with respect to
claims under the North Dakota Franchise Investment Law.
d. If the Agreement requires that it be governed by a state's law, other
than the State of North Dakota, to the extent that such law conflicts
with the North Dakota Franchise Investment Law, the North Dakota
Franchise Investment Law will control.
e. If the Agreement requires arbitration or mediation to be conducted in a
forum other than the State of North Dakota, the requirement may be
unenforceable under the North Dakota Franchise Investment Law.
Arbitration or mediation involving a franchise purchased in the State
of North Dakota must be held either in a location mutually agreed upon
prior to the arbitration/mediation or if the parties cannot agree on a
location, the location will be determined by the arbitrator/mediator.
f. If the Agreement requires payment of a termination penalty, the
requirement may be unenforceable under the North Dakota Franchise
Investment Law.
2. Each provision of this Amendment shall be effective only to the extent
that the jurisdictional requirements of the North Dakota Franchise Investment
Law, with respect to each such provision, are met independent of this
Amendment. This Amendment shall have no force or effect if such jurisdictional
requirements are not met.
FRANCHISEE and its Principal Owners have duly executed this Amendment to the
Franchise Agreement, approved and executed by SNELLING on ________, 19___.
FRANCHISEE
By:
-----------------------------
Name:
----------------------------
Title: President
ATTEST: SNELLING AND SNELLING, INC.
By:
- ----------------------------- -----------------------------
Name: Joseph G. Stover Name: Robert R. Paulk
Title: Assistant Secretary Title: Senior Vice President
CORPORATE SEAL OF SNELLING
OWNERSHIP
DATE PERCENTAGE PRINCIPAL OWNERS:
% (1)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (2)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (3)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (4)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
<PAGE> 41
ATTACHMENT "1" TO FRANCHISE AGREEMENT
================================================================================
ADDENDUM TO SNELLING AND SNELLING, INC.
FRANCHISE AGREEMENT FOR THE STATE OF RHODE ISLAND
This Addendum, which is executed in one or more original counterparts,
amends the Franchise Agreement between Snelling and Snelling, Inc.
("SNELLING"), a Pennsylvania corporation, having its principal place of
business at 12801 North Central Expressway, Suite 700, Dallas, Texas 75243,
and ________________________ ("FRANCHISEE"), by adding the following language,
which shall be an integral part of the Franchise Agreement (the "Amendment"):
RHODE ISLAND LAW MODIFICATIONS
1. The Rhode Island Securities Division requires that certain provisions
contained in franchise documents be amended to be consistent with Rhode Island
law, including the Franchise Investment Act, R.I. Gen. Law. ch. 395 Sec. 19-
28.1-1 - 19.28.1-34. To the extent that this Agreement contains provisions
that are inconsistent with the following, such provisions are hereby amended:
a. If this Agreement requires litigation to be conducted in a forum other
than the State of Rhode Island, the requirement is void under Rhode
Island Franchise Investment Act. Sec. 19.28.1-14.
b. If this Agreement requires that it be governed by a state's law, other
than the State of Rhode Island, to the extent that such law conflicts
with Rhode Island Franchise Investment Act it is void under Sec.
19-28.1-14.
c. If the FRANCHISEE is required in this Agreement to execute a release of
claims or to acknowledge facts that would negate or remove from
judicial review any statement, misrepresentation or action that would
violate the Act, or a rule or order under the Act, such release shall
exclude claims arising under the Rhode Island Franchise Investment Act,
and such acknowledgements shall be void with respect to claims under
the Act.
2. Each provision of this Amendment shall be effective only to the extent
that the jurisdictional requirements of the Rhode Island Franchise Investment
Act, with respect to each such provision are met independent of this Amendment.
This Amendment shall have no force or effect if such jurisdictional
requirements are not met.
FRANCHISEE and its Principal Owners have duly executed this Amendment to the
Franchise Agreement, approved and executed by SNELLING on _______, 19______.
FRANCHISEE
By:
-----------------------------
Name:
----------------------------
Title: President
ATTEST: SNELLING AND SNELLING, INC.
By:
- ----------------------------- -----------------------------
Name: Joseph G. Stover Name: Robert R. Paulk
Title: Assistant Secretary Title: Senior Vice President
CORPORATE SEAL OF SNELLING
OWNERSHIP
DATE PERCENTAGE PRINCIPAL OWNERS:
% (1)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (2)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (3)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (4)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
<PAGE> 42
ATTACHMENT "1" TO FRANCHISE AGREEMENT
================================================================================
ADDENDUM TO SNELLING AND SNELLING, INC.
FRANCHISE AGREEMENT FOR THE STATE OF SOUTH DAKOTA
This Addendum, which is executed in one or more original counterparts,
amends the Franchise Agreement between Snelling and Snelling, Inc.
("SNELLING"), a Pennsylvania corporation, having its principal place of
business at 12801 North Central Expressway, Suite 700, Dallas, Texas 75243,
and ________________________ ("FRANCHISEE"), by adding the following language,
which shall be an intergral part of the Franchise Agreement (the "Amendment"):
SOUTH DAKOTA LAW MODIFICATIONS
1. The Director of the South Dakota Division of Securities requires that
certain provisions contained in franchise documents be amended to be consistent
with South Dakota law, including the South Dakota Franchises for Brand-Name
Goods and Services Law, South Dakota Codified Laws, Title 37, Chapter 37-5A,
Sections 37-5A-1 through 37-5A-87 (1994). To the extent that this Agreement
contains provisions that are inconsistent with the following, such provisions
are hereby amended:
a. If the FRANCHISEE is required in this Agreement to execute a release of
claims or to acknowledge facts that would negate or remove from
judicial review any statement, misrepresentation or action that would
violate the Law, or a rule or order under the Law, such release shall
exclude claims arising under the South Dakota Franchises for Brand-Name
Goods and Services Law, and such acknowledgments shall be void with
respect to claims under the Law.
b. Covenants not to compete upon termination or expiration of the
Agreement are generally unenforceable in the state of South Dakota,
except in certain limited instances as provided by law. If this
Agreement contains a covenant not to compete which is inconsistent with
South Dakota Law, the covenant may be unenforceable.
c. Regardless of the terms of the Agreement concerning termination, if
FRANCHISEE fails to meet performance and quality standards or fails to
make any royalty payments under the Agreement, FRANCHISEE will be
afforded thirty (30) days' written notice with an opportunity to cure
the default before termination.
d. If the Agreement requires payment of liquidated damages that are
inconsistent with South Dakota Law, the liquidated damage clauses may
be void under SDCL 53-9-5.
e. If the Agreement requires litigation to be conducted in a forum other
than the State of South Dakota, the requirement is void with respect to
any cause of action otherwise enforceable under South Dakota Law.
f. If the Agreement requires that it be governed by a state's law, other
than the State of South Dakota, the law regarding franchise
registration, employment, covenants not to compete, and other matters
of local concern will be governed by the laws of the State of South
Dakota; but as to contractual and all other matters, the Agreement and
all provisions of this Amendment will be and remain subject to the
application, construction, enforcement, interpretation under the
governing law set forth in the Agreement.
g. If the Agreement requires that disputes between SNELLING and FRANCHISEE
be mediated/arbitrated at a location that is outside the State of South
Dakota, the mediation/arbitration will be conducted at a location
mutually agreed upon by the parties. If the parties cannot agree on
location for the mediation/arbitration, the location shall be
determined by the mediator/arbitrator selected.
h. Any provision that provides that the parties waive their right to claim
punitive, exemplary, incidental, indirect, special or consequential
damages may be unenforceable under South Dakota law.
2. Each provision of this Amendment shall be effective only to the extent
that the jurisdictional requirements of the South Dakota Franchise Investment
Law, with respect to each such provision, are met independent of this
Amendment. This Amendment shall have no force or effect if such jurisdictional
requirements are not met.
FRANCHISEE and its Principal Owners have duly executed this Amendment to the
Franchise Agreement, approved and executed by SNELLING on _________, 19__.
FRANCHISEE
By:
-----------------------------
Name:
----------------------------
Title: President
ATTEST: SNELLING AND SNELLING, INC.
By:
- ----------------------------- -----------------------------
Name: Joseph G. Stover Name: Robert R. Paulk
Title: Assistant Secretary Title: Senior Vice President
CORPORATE SEAL OF SNELLING
OWNERSHIP
DATE PERCENTAGE PRINCIPAL OWNERS:
% (1)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (2)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (3)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (4)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
<PAGE> 43
ATTACHMENT "1" TO FRANCHISE AGREEMENT
================================================================================
ADDENDUM TO SNELLING AND SNELLING, INC.
FRANCHISE AGREEMENT FOR THE STATE OF WASHINGTON
This Addendum, which is executed in one or more original counterparts,
amends the Franchise Agreement between Snelling and Snelling, Inc.
("SNELLING"), a Pennsylvania corporation, having its principal place of
business at 12801 North Central Expressway, Suite 700, Dallas, Texas 75243,
and ______________________ ("FRANCHISEE"), by adding the following language,
which shall be an intergral part of the Franchise Agreement (the "Amendment"):
WASHINGTON LAW MODIFICATIONS
1. The Director of the Washington Department of Financial Institutions
requires that certain provisions contained in franchise documents be amended to
be consistent with Washington law, including the Washington Franchise
Investment Protection Act, WA Rev. Code Sections 19.100.010 to 19.100.940
(1991). To the extent that the Agreement contains provisions that are
inconsistent with the following, such provisions are hereby amended:
a. Washington Franchise Investment Protection Act provides rights to You
concerning nonrenewal and termination of the Agreement. If the
Agreement contains a provision that is inconsistent with the Act, the
Act will control.
b. If the FRANCHISEE is required in the Agreement to execute a release of
claims, such release shall exclude claims arising under the Washington
Franchise Investment Protection Act; except when the release is
executed under a negotiated settlement after the Agreement is in effect
and where the parties are represented by independent counsel. If there
are provisions in the Agreement that unreasonably restrict or limit the
statute of limitations period for claims brought under the Act, or
other rights or remedies under the Act, those provisions may be
unenforceable.
c. If the Agreement requires litigation, arbitration, or mediation to be
conducted in a forum other than the State of Washington, the
requirement may be unenforceable under Washington law. Arbitration
involving a franchise purchased in the State of Washington, must either
be held in the State of Washington or in a place mutually agreed upon
at the time of the arbitration, or as determined by the arbitrator.
d. If the Agreement requires that it be governed by a state's law, other
than the State of Washington, and there is a conflict between the law
and the Washington Franchise Investment Protection Act, the Washington
Franchise Investment Protection Act will control.
2. Each provision of this Amendment shall be effective only to the extent
that the jurisdictional requirements of the Washington law applicable to the
provision are met independent of this Amendment. This Amendment shall have no
force or effect if such jurisdictional requirements are not met.
FRANCHISEE and its Principal Owners have duly executed this Amendment to the
Franchise Agreement, approved and executed by SNELLING on __________, 19__.
FRANCHISEE
By:
-----------------------------
Name:
----------------------------
Title: President
ATTEST: SNELLING AND SNELLING, INC.
By:
- ----------------------------- -----------------------------
Name: Joseph G. Stover Name: Robert R. Paulk
Title: Assistant Secretary Title: Senior Vice President
CORPORATE SEAL OF SNELLING
OWNERSHIP
DATE PERCENTAGE PRINCIPAL OWNERS:
% (1)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (2)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (3)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (4)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
<PAGE> 44
ATTACHMENT "1" TO FRANCHISE AGREEMENT
================================================================================
ADDENDUM TO SNELLING AND SNELLING, INC.
FRANCHISE AGREEMENT FOR THE STATE OF WISCONSIN
This Addendum, which is executed in one or more original counterparts,
amends the Franchise Agreement between Snelling and Snelling, Inc.
("SNELLING"), a Pennsylvania corporation, having its principal place of
business at 12801 North Central Expressway, Suite 700, Dallas, Texas 75243,
and _____________________ ("FRANCHISEE"), by adding the following language,
which shall be an intergral part of the Franchise Agreement (the "Amendment"):
WISCONSIN LAW MODIFICATIONS
1. The Securities Commissioner of the State of Wisconsin requires that
certain provisions contained in franchise documents be amended to be consistent
with Wisconsin Fair Dealership Law, Wisconsin Statutes, Chapter 135 ("Fair
Dealership Law"). To the extent that the Agreement contains provisions that
are inconsistent with the following, such provisions are hereby amended:
a. The Wisconsin Fair Dealership Law, among other things, grants You the
right, in most circumstances, to 90 days' prior written notice of
non-renewal and 60 days within which to remedy any claimed
deficiencies. If the Agreement contains a provision that is
inconsistent with the Wisconsin Fair Dealership Law, the provisions of
the Agreement shall be superseded by the Law's requirements and shall
have no force or effect.
b. The Wisconsin Fair Dealership Law, among other things, grants You the
right, in most circumstances, to 90 days' prior written notice of
termination and 60 days within which to remedy any claimed
deficiencies. If the Agreement contains a provision that is
inconsistent with the Wisconsin Fair Dealership Law, the provisions of
the Agreement shall be superseded by the Law's requirements and shall
have no force or effect.
c. If the Agreement requires that it be governed by a state's law, other
than the State of Wisconsin, to the extent that any provision of the
Agreement conflicts with the Wisconsin Fair Dealership Law such
provision shall be superseded by the law's requirements.
2. Each provision of this Amendment shall be effective only to the extent
that the jurisdictional requirements of the Wisconsin law, with respect to each
such provision, are met independent of this Amendment. This Amendment shall
have no force or effect if such jurisdictional requirements are not met.
FRANCHISEE and its Principal Owners have duly executed this Amendment to the
Franchise Agreement, approved and executed by SNELLING on ____________, 19___.
FRANCHISEE
By:
-----------------------------
Name:
----------------------------
Title: President
ATTEST: SNELLING AND SNELLING, INC.
By:
- ----------------------------- -----------------------------
Name: Joseph G. Stover Name: Robert R. Paulk
Title: Assistant Secretary Title: Senior Vice President
CORPORATE SEAL OF SNELLING
OWNERSHIP
DATE PERCENTAGE PRINCIPAL OWNERS:
% (1)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (2)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (3)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
% (4)
- ------------------ ---------- ----------------------------------
Name:
---------------------------------
<PAGE> 45
ATTACHMENT "2" TO
FRANCHISE AGREEMENT
--------------
APPROVED LOCATION Office Number:
--------------
In accordance with Subsection 5(a) of the Franchise Agreement, the PS Location
shall be at the following address:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE> 46
ATTACHMENT "3" TO FRANCHISE AGREEMENT
GUARANTY
In consideration of, and as an inducement to, the execution of that
certain Franchise Agreement ("Agreement") between SNELLING and SNELLING, Inc.
("SNELLING") and ("FRANCHISEE"), each of the undersigned personally and
unconditionally acknowledges, covenants and agrees as follows:
1. Each is included in the term "Principal Owner" as defined in Section 4
of the Agreement.
2. Each has read the terms and conditions of the Agreement and
acknowledges that this Guaranty and the undertakings of the Principal Owners in
the Agreement are in partial consideration for, and a condition to, the
granting of the license to FRANCHISEE, and that SNELLING would not have granted
the license without the inclusion of this Guaranty and such undertakings by
each of the Principal Owners who signed the Agreement.
3. Each individually, jointly and severally, makes all of the covenants,
representations, warranties and agreements of the Principal Owners set forth in
the Agreement and is obligated to perform thereunder.
4. Each individually, jointly and severally, unconditionally and
irrevocably, guarantees to SNELLING that all of FRANCHISEE's obligations under
the Agreement will be punctually paid and performed. Upon default by FRANCHISEE
or upon notice from SNELLING, each will immediately make each payment and
perform each obligation required of FRANCHISEE under the Agreement.
5. Without affecting the obligations of any of the Principal Owners under
this Guaranty, SNELLING may, without notice to the Principal Owners, waive,
renew, extend, modify, amend, or release any indebtedness or obligation of
FRANCHISEE or settle, adjust, or compromise any claims that SNELLING may have
against FRANCHISEE. Each of the Principal Owners waives all demands and notices
of every kind with respect to the enforcement of this Guaranty, including
notice of presentment demand for payment or performance by FRANCHISEE, any
default by FRANCHISEE or any guarantor and any release of any guarantor or
other security for this Guaranty or the obligations of FRANCHISEE, SNELLING may
pursue its rights against any of the Principal Owners without first exhausting
its remedies against FRANCHISEE and without joining any other guarantor hereto
and no delay on the part of SNELLING in the exercise of any right or remedy
shall operate as a waiver of such right or remedy, and no single or partial
exercise by SNELLING of any right or remedy shall preclude the further exercise
of such right or remedy. Upon receipt by SNELLING of notice of the death of any
of the Principal Owners, the estate of the deceased will be bound by this
Guaranty, but only for defaults and obligations under the Agreement existing at
the time of death, and in such event, the obligations of the remaining
Principal Owners shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have duly executed and delivered this Guaranty.
Date:
--------------------- ---------------------------------
Name
Date:
--------------------- ---------------------------------
Name
Date:
--------------------- ---------------------------------
Name
Date:
--------------------- ---------------------------------
Name
<PAGE> 1
EXHIBIT 10.22
ASSET PURCHASE AGREEMENT
BETWEEN
KAL HELP ENTERPRISES, INC.
(THE "SELLERS")
AND BRETT S. HARDT AND JEFF ALBRECHT
(THE "STOCKHOLDERS")
AND
SNELLING AND SNELLING, INC. ("PURCHASER")
1
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2. Sale and Transfer of Assets . . . . . . . . . . . . . . . . . . . . . 7
3. Assumption of Liabilities . . . . . . . . . . . . . . . . . . . . . . 7
4. Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5. Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . .9
6. Allocation of Expenses . . . . . . . . . . . . . . . . . . . . . . . 9
7. Collection of Accounts Receivable . . . . . . . . . . . . . . . . . . 10
8. Closing Deliveries by the Sellers and Stockholders . . . . . . . . . 11
9. Closing Deliveries by Purchaser . . . . . . . . . . . . . . . . . . . 14
10. Representations and Warranties of the Sellers
and the Stockholders . . . . . . . . . . . . . . . . . . . . . . . . 15
11. Covenants of the Sellers and the Stockholders . . . . . . . . . . . . 19
12. Representations and Warranties of Purchaser . . . . . . . . . . . . . 23
13. Covenants of Purchaser . . . . . . . . . . . . . . . . . . . . . . . 24
14. Indemnity by the Sellers and the Stockholders . . . . . . . . . . . . 25
15. Indemnity by Purchaser . . . . . . . . . . . . . . . . . . . . . . . 26
16. Termination of Agreements . . . . . . . . . . . . . . . . . . . . . . 26
17. Loss or Destruction . . . . . . . . . . . . . . . . . . . . . . . . . 27
18. Conditions Precedent to Purchaser's
Obligation to Close . . . . . . . . . . . . . . . . . . . . . . . . . 27
19. Conditions Precedent to the Sellers'
Obligation to Close . . . . . . . . . . . . . . . . . . . . . . . . . 28
20. Additional Post-Closing Responsibilities . . . . . . . . . . . . . . 29
21. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
22. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
23. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 34
24. Mediation and Arbitration . . . . . . . . . . . . . . . . . . . . . . 35
25. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
26. Bulk Transfer Laws . . . . . . . . . . . . . . . . . . . . . . . . . 37
27. Release by Sellers and Stockholders . . . . . . . . . . . . . . . . . 38
28. Release by Purchaser . . . . . . . . . . . . . . . . . . . . . . . . 39
</TABLE>
2
<PAGE> 3
SCHEDULES
<TABLE>
<S> <C>
Schedule 1 - Tangible Assets
Schedule 2 - Assumed Contracts
Schedule 3 - List of Receivables to be Delivered at Closing
Schedule 4 - Allocation of Purchase Price
Schedule 5 - Encumbrances
Schedule 6 - Employees
Schedule 7 - Promissory Note
Schedule 8 - Subordination Agreement
</TABLE>
3
<PAGE> 4
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is entered into
effective as of this 16th day of October, 1996, by and among KAL Help
Enterprises, Inc., an Illinois corporation (the "Sellers"), and BRETT S. HARDT
AND JEFF ALBRECHT (the "Stockholders"), on one hand, and SNELLING AND SNELLING,
INC. ("Purchaser"), a Pennsylvania corporation, on the other hand.
RECITALS
WHEREAS Sellers are operating one (1) "Snelling Personnel
Services" office (the "Office") pursuant to a certain franchise agreement with
Purchaser at the following location:
<TABLE>
<CAPTION>
Office No. Location of Office. Date of Franchise Agreement.
- -------------------- ------------------- ----------------------------
<S> <C> <C>
F0260 3711 S. Westnedge Avenue May 24, 1994
Kalamazoo, Michigan 49008
</TABLE>
WHEREAS, Stockholders are the owners of one hundred percent (100%) of
the issued and outstanding common stock of Sellers;
WHEREAS, Sellers desire to sell, transfer, convey and assign to
Purchaser, and Purchaser desires to purchase, under the terms and conditions
set forth herein, all of the assets of Sellers associated with the Office,
including the trademarks, service marks, and trade names, if any, and the good
will associated with the Office;
WHEREAS, Sellers' franchise agreement with Purchaser is referred to in
this Agreement as the "Franchise Agreement."
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WHEREAS, Purchaser also desires to obtain assignments of certain
contracts and agreements relating to the operation of Sellers' Office and
agrees to assume certain of Sellers' obligations and liabilities.
NOW, THEREFORE, FOR AND IN CONSIDERATION of the mutual promises
contained herein, the parties agree as follows:
1. DEFINITIONS. The following words shall have the following
meanings when used in this Agreement:
(a) "Assets" shall mean all of the rights, title and interest
of Sellers in the assets, properties, rights, claims and contracts of every
kind, character and description, whether real or personal, tangible or
intangible, which are used or usable in, or relate to, the operation of the
Office, without regard to whether reflected on the Sellers' financial
statements or books. Specifically excluded from the Assets being sold
hereunder are any accounts receivable of the Sellers related to work performed
or services provided through the close of business of the day immediately prior
to the Closing Date. Assets being acquired by Purchaser are:
(i) the tangible assets set forth and identified as
being acquired by Purchaser in Schedule 1 to this Agreement;
(ii) all contracts and relationships of Sellers with
clients and with temporary employees (as those terms are defined in the
Franchise Agreement);
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(iii) Sellers' rights in and to the telephone numbers and
telephone directory advertising for the Office, and all other intangible
property, trade secrets, rights under Assumed Contracts (as defined in Section
3), permits, and licenses associated with the Office;
(iv) any Internet names registered by Sellers;
(v) all of Sellers' trade names, trademarks, or service
marks used, or available for use, in Sellers' business;
(vi) the rights of the Sellers under the assumption of
the Lease of real property relating to the Office (the "Lease");
(vii) all inventory and supplies on hand as of the
Closing Date;
(viii) all business papers and records pertaining to the
Office, including but not limited to personnel records (including payroll
records) concerning each employee of the Sellers who will become employed by
the Purchaser after the Closing Date, client records, vendor lists, and
operations manuals; and
(ix) all Placement Receipts, if any, (as that term is
defined in the Franchise Agreement) except for those for which the employee has
both been offered permanent employment by a client and accepted such offer of
employment on or before the Closing Date.
(b) "Closing" shall mean the events which take place for the
purpose of consummating the transactions contemplated by this Agreement,
commencing 9:00 a.m. on MONDAY, NOVEMBER 4, 1996, at CHICAGO, ILLINOIS, or at
another acceptable time and location to which the parties agree; and
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(c) "Closing Date" shall mean 12:01 a.m. on Monday, November
4, 1996.
2. SALE AND TRANSFER OF CERTAIN ASSETS. Upon the terms and subject
to the conditions set forth in this Agreement, the Sellers agree to sell,
transfer, assign, grant, convey and deliver the tangible Assets listed on
Schedule 1 and all other Assets listed in Subsection 1(a) to Purchaser on the
Closing Date, free and clear of all mortgages, liens, security interests,
pledges, charges and other encumbrances. Notwithstanding any language that may
be stated in this Agreement, Sellers' accounts receivable as that term is
described herein, are not an Asset being sold, transferred, assigned, granted,
or conveyed to Purchaser.
3. ASSUMPTION OF LIABILITIES. Purchaser has not assumed, and shall
not assume, any liability or obligation of any nature, known or unknown,
existing or contingent, of the Sellers, except that, at Closing: (i) Purchaser
shall assume the Lease unless Purchaser notifies Sellers in writing within ten
(10) days of the Closing that Purchaser will not assume the Lease; and (ii) the
other written contracts and obligations specifically identified in Schedule 2
to this Agreement (the "Assumed Contracts"). Sellers shall assume and make
payments for the obligations for unused vacation and unused sick leave, if
any, accrued through the Closing Date by each employee of the Sellers. The
Sellers acknowledge that Purchaser does not assume any obligation in connection
with any actual or alleged breach or default of Lease or Assumed Contracts
occurring at any time through the Closing Date. Except for the items specified
in clauses (i) and (ii) above, all obligations, liens, encumbrances, and
liabilities of the Sellers shall continue to be the sole responsibility of the
Sellers and Sellers shall hold Purchaser harmless.
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4. PURCHASE PRICE. In reliance upon the representations and
warranties for the assets named herein, Purchaser shall pay the Sellers Three
Million Dollars ($3,000,000) (the "Purchase Price") plus interest as provided
in Subsection 4(b)(i) below. The Purchase Price shall be paid as follows:
(a) At Closing, Purchaser shall pay the Sellers Thirty Five
Thousand Dollars ($35,000) in cash by certified check;
(b) At Closing, Purchaser shall deliver to Sellers a
subordinated promissory note (the "Note") in the amount of Two Million Nine
Hundred Sixty-Five Thousand Dollars ($2,965,000). Terms of the Note are as
follows:
(i) Interest at prime based upon the prime rate listed
in the Wall Street Journal on the last business day preceding the Closing;
(ii) One (1) payment in the amount of Eight Hundred
Sixty-Four Thousand Dollars ($864,000) plus interest from the Closing Date to
be paid on January 2, 1997. The payment shall be by certified check sent
overnight by the close of business; and
(iii) One (1) payment in the amount of Two Hundred Fifty-
Six Thousand Dollars ($256,000) plus interest from the Closing Date to be paid
on February 3, 1997. The payment shall be by certified check sent overnight by
the close of business.
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(c) Twenty (20) equal payments of the remaining principal of
One Million Eighty Hundred Forty-Five Thousand Dollars ($1,845,000), plus
interest from the Closing Date, to be paid quarterly on the last business day
of the month, beginning March 31, 1997, with a final payment to be made on
December 31, 2001.
5. ALLOCATION OF PURCHASE PRICE. In accordance with Section
1060 of the Internal Revenue Code of 1986, as amended, the Purchase Price shall
be allocated in the manner set forth in Schedule 4 to this Agreement. The
Sellers, the Stockholders, and Purchaser each covenant and warrant to each
other that: (i) in no tax return filed by the parties or any of their
respective successors or assigns shall the allocation of the Purchase Price be
treated or reported inconsistently with or differently from the allocation of
the Purchase Price set forth in Schedule 4, unless such change in allocation is
the result of a determination by a governing authority for that year or a
preceding year; and (ii) in no tax audit, tax examination, tax or compliance
review or tax litigation will the parties or any of their respective successors
or assigns claim or assert that the allocation of the Purchase Price is or
should be inconsistent with or different from that set forth in Schedule 4,
unless as a result of a determination made by a governing authority in a
preceding year. The parties agree to file all appropriate Internal Revenue
Service Forms with their respective Federal income tax returns for their
respective tax year in which the Closing occurs.
6. ALLOCATION OF EXPENSES. All real estate taxes, personal
property taxes, rents, telephone charges, utilities, and other costs and
expenses of owning or operating the Assets which relate to periods both before
and after the Closing Date (the "Prorated Costs") shall be prorated on a per
diem basis as of the
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Closing Date, with the Sellers responsible for the portion of all such items
which relates to the period through the Closing Date, and Purchaser responsible
for the portion of all such items which relates to the period after the Closing
Date. Prorated Costs shall be settled between Purchaser and Sellers either at
Closing or as soon as practicable thereafter; and
(a) Any sales tax, use tax, excise tax, transfer tax,
recording fee or other tax or fee imposed on the transfer of the Assets from
Sellers to Purchaser shall be paid by Sellers.
7. COLLECTION OF ACCOUNTS RECEIVABLE. With respect to the accounts
receivable for the placement of employees, Sellers shall be entitled to all
monies owed Sellers, as evidenced by the accounts receivable list at time of
Closing covering all work completed through Friday, October 25, 1996, to be
followed by a subsequent report covering accounts receivable up to Closing,
which shall be due Purchaser by Thursday, November 7, 1996. Purchaser shall
be entitled to all monies received from the generation of accounts receivable
subsequent to November 3, 1996; and
(a) As described above, Sellers shall provide at Closing or
immediately thereafter, a list of placement and temporary accounts receivable
due Sellers on the Closing Date. For ninety (90) days subsequent to the
Closing, Purchaser shall be responsible for the collection of such accounts
receivable and shall provide Sellers a weekly report accompanied by all monies
due Sellers in accordance with Sellers' Franchise Agreements with Purchaser
except that Sellers shall be responsible for all collection efforts with
inactive clients' accounts receivable which are over sixty (60) days old.
Inactive client shall be defined as a
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client who has not utilized the services of Sellers within six (6) months of
the Closing Date. Purchaser shall return to Sellers at the end of the ninety
(90) day period all uncollected accounts receivable for further collection
efforts by Sellers. Purchaser shall incur no liability to Sellers for the
uncollectibility of said accounts receivable. Thereafter, Sellers shall submit
to Purchaser monthly reports of all collection activity accompanied by all
monies due Purchaser in accordance with the provisions of the Franchise
Agreement. Sellers shall receive credit for all collections subsequent to
Closing, whether by Sellers or Purchaser, under the Sales Incentive Program
Agreement ("SIP") and shall receive payment in accordance with SIP; and
(b) Sellers shall have access to all records to assist Sellers
in the collection of certain accounts receivable or for litigation or
government filing purposes.
8. CLOSING DELIVERIES BY THE SELLERS AND THE STOCKHOLDERS. The
Sellers and the Stockholders agree to execute and deliver at Closing, or cause
to be executed and delivered at Closing, the following:
(a) Such instruments of transfer, assignment and conveyance as
shall be necessary or desirable in the judgment of Purchaser to vest in
Purchaser good and marketable title to the Assets free and clear of all
mortgages, liens, security interests, pledges, charges and other encumbrances.
Such instruments of transfer shall include:
(i) A Bill of Sale from the Sellers, in the form
furnished to the Sellers by Purchaser;
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(ii) The written consent of the lessor to the assignment
and assumption of the Lease provided, however, if Sellers cannot obtain any
such assignment and assumption, Sellers shall assign any and all rights they
have in the Lease. Sellers shall indemnify and hold harmless Purchaser from
any and all damages and costs incurred by Purchaser if the lessor rejects the
Sellers' assignment of its rights to Purchaser and either reforms the Lease or
terminates the Lease, so long as lessor's action is based upon the assignment
and not a breach by Purchaser of any of the terms of the Lease Purchaser
accepted from Sellers. Sellers shall use their best efforts to obtain all such
assignments and assumptions;
(iii) Cooperation of parties to receive written consents
of third parties under the Assumed Contracts to the assignment and assumption
of the Assumed Contracts as soon as possible;
(iv) Form UCC-3 termination statements, signed by the
creditor, to cancel any financing statements disclosed in Schedule 5 to this
Agreement (other than financing statements filed in connection with Assumed
Contracts);
(v) Unanimous written consents, signed by all
Stockholders of the Sellers, in a form consistent with the Sellers' bylaws and
state laws, approving the transactions contemplated hereunder, and any other
duly executed corporate and other documents which Purchaser may have reasonably
requested hereunder, satisfactory in form and substance, in the reasonable
judgment of Purchaser, and where appropriate certified by the proper corporate
or governmental authorities; and
(vi) The written consents of any other persons whose
approval or consent to the execution, delivery, and performance of this
Agreement by the Sellers is legally or contractually required.
(b) The originals of the Lease, and (if written) the Assumed
Contracts;
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(c) A certificate signed by the president of Sellers to the
effect that all representations and warranties of Sellers contained in this
Agreement are true at and as of Closing, that Sellers have performed all
agreements on its part required to be performed hereunder, and that Sellers are
not in default under any of the provisions of this Agreement;
(d) Copies of insurance policies conforming to Subsection
10(m);
(e) A letter to the telephone company servicing Sellers
requesting transfer to Purchaser of the telephone number (including numbers for
facsimile machines and modems) and listings applicable to the Office;
(f) List of accounts receivable as of the Closing Date as
provided in Section 7;
(g) Any names or addresses Sellers have registered for use on
the Internet; and
(h) No later than five (5) days prior to Closing, Sellers
shall submit to Purchaser such other instruments, documents or affidavits, in
form and substance reasonably acceptable to Purchaser, as may be necessary to
effect the Closing
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9. CLOSING DELIVERIES BY PURCHASER. In addition to delivery of
the amount required under Subsection 4(a) above, Purchaser agrees to execute
and deliver at the Closing, or cause to be executed and delivered at Closing:
(a) Immediately available funds in the amount provided in
Subsection 4(a);
(b) A Promissory Note in accordance with 4(b);
(c) Such instruments as shall be necessary or desirable in the
judgment of the Sellers to effect the assumption by Purchaser of the Lease and
the Assumed Contracts;
(d) Certified copy of resolutions duly adopted by the Board of
Directors of Purchaser authorizing the execution and delivery of this
Agreement and consummation of transactions described herein, which shall be in
full force and effect at the time of delivery;
(e) A certificate signed by the president of Purchaser to the
effect that all representations and warranties of Purchaser contained in this
Agreement are true at and as of Closing, that Purchaser has performed all
agreements on its part required to be performed hereunder, and that Purchaser
is not in default under any of the provisions of this Agreement;
(f) Written consent from the bank, approving the transactions
herein;
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(g) Certified copy of resolutions authorizing Richard H.
Spragins to act or sign documents on behalf of Purchaser as an authorized
agent; and
(h) With respect to Lease deposits, Sellers shall not seek nor
accept the return of the Lease deposit, or any part thereof, and Purchaser
shall pay to Sellers at Closing, among other payments, an amount sufficient to
cover Sellers' Lease deposit with Lessor. In the event lessor terminated the
Lease agreement and the termination is based upon the change of lessees,
Sellers shall request return of Lease deposit from lessor and return to
Purchaser the amount received from lessor.
10. REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE
STOCKHOLDERS. The Sellers and the Stockholders, jointly and severally,
represent and warrant as follows:
(a) The Sellers have been duly organized and are validly
existing and in good standing under the laws of the State of Illinois;
(b) The Stockholders together own all of the issued and
outstanding stock of the Sellers. The execution, delivery, and performance of
this Agreement have been duly authorized by the Board of Directors of the
Sellers, and all necessary Stockholders action under the Sellers' bylaws and
Illinois law has been taken for approval of the execution and delivery of this
Agreement by the Sellers, their performance of the terms of this Agreement, and
the consummation of the transactions contemplated hereunder;
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(c) The execution and delivery of this Agreement, the Sellers'
performance hereunder, and the consummation of the transactions herein
contemplated, do not, and to the best of the Stockholders' knowledge will not
immediately or with the passage of time, the giving of notice or otherwise,
result in the breach of, constitute a default or violation under, or accelerate
any obligation under any agreement or other instruments to which either the
Sellers or any of the Stockholders are a party, or may be bound, so as to give
or create any rights in third parties with respect to the Assets;
(d) The Sellers have good title and right to use of all trade
names, trademarks or service marks used or available for use in Sellers'
Office, and neither the Sellers nor the Stockholders have notice of any claim
concerning a violation of or infringement upon the rights of any third party
with respect to the use of any trade name, trademark, service mark, copyright
or patent;
(e) This Agreement and the other agreements and transactions
contemplated herein to which the Sellers are or will be a party will each, upon
execution and delivery, be a legal, valid, and binding obligation of the
Sellers, enforceable in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally;
(f) Except as disclosed in Schedule 5, the Sellers have good
and marketable title to the Assets free and clear of all mortgages, liens,
security interests, pledges, charges, obligations and other encumbrances;
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(g) The Sellers have previously delivered to Purchaser the
Sellers' most recent federal income tax returns, balance sheets as of June 30,
1996, together with the Sellers' income statements for the fiscal year then
ended, and the interim balance sheets and income statements of the Sellers,
June 30, 1996, (collectively, the "Financial Statements"). The Financial
Statements reflect or provide for all material claims against, and all material
debts and liabilities relating to, the Office, fixed or contingent, as of the
dates of the Financial Statements. There has not been any change since the
date of the most recent Financial Statements which materially and adversely
affected the Office or the Assets or the financial condition or results of the
operation of the Sellers. The Financial Statements are true, correct and
complete and were prepared in good faith in accordance with a cash basis of
accounting which system is a comprehensive accounting method used by Sellers;
(h) The Sellers have filed all federal, state, and local tax
returns including income, sales, and payroll, which were required to be filed
prior to the date of this Agreement and have made payment of all taxes shown by
those returns to be due and payable;
(i) The Sellers have all requisite power and all known
necessary permits, certificates, contracts, approvals and other authorizations
required by federal, state, city, county or other municipal bodies to own,
lease, and use the Assets to operate the Office in the manner in which they are
presently operated;
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(j) In connection with the operation of the Office and
ownership and use of the Assets, there are not now and have not been any
material failures to comply with any applicable known local, state or federal
laws, regulations, ordinances or administrative or judicial orders, and no
allegations have been made of any such failure;
(k) Sellers are not subject to any order of any court or
governmental authority; any pending or, to the best of the Sellers' and the
Stockholders' knowledge, threatened action, suit, proceeding, inquiry or
investigation at law or in equity; or any proceeding before any court,
arbitrator, public board or body, in which an unfavorable decision, ruling or
finding would, in any way, prevent the carrying out of this Agreement or any of
the transactions contemplated hereunder, declare unlawful any such
transactions, cause such transactions to be rescinded, have a material adverse
effect on the Office or the financial condition of the Sellers;
(l) Except for the Lease and the Assumed Contracts, and the
encumbrances listed in Schedule 5, there are no agreements, Lease, contracts,
charges, encumbrances or restrictions which may restrict Purchaser's use or
right to use any of the Assets or which create obligations for which Purchaser
could be liable;
(m) The Sellers have maintained liability insurance for any
claims which may have arisen or cause of action which may have accrued during
Sellers' ownership and/or operation of the Assets and the Office. Such
liability insurance is of the "occurrence" type, so that if the policies are
discontinued by the
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Sellers after the Closing Date, liability insurance coverage will nevertheless
continue (subject to the terms and conditions of such policies) with respect to
such claims and causes of action;
(n) Neither this Agreement nor any Exhibit, Schedule, or
attachment hereto, nor any certificate or other information or document
furnished by or on behalf of the Sellers or the Stockholders knowingly contains
any untrue statement of a material fact, or knowingly omits to state a material
fact necessary in order to make the statements contained herein or therein not
misleading;
(o) Schedule 6 to this Agreement is a list of all persons
currently employed by the Sellers. Schedule 6 accurately and completely shows
the listed employees' current rates of compensation. Sellers have no
employment agreements with any of its employees which Purchaser will be
required to assume and has no oral or written understandings with any of its
employees which relate to terms or conditions of such employee's employment
which Purchaser will be required to assume. Purchaser has agreed to employ
under employment at will agreements for Sellers' staff employees; and
(p) The Sellers have no pension sharing plans or employee
benefit plans (as that term is defined in the federal law commonly known as the
Employees' Retirement Income Security Act, as amended) for any of its
employees, which Purchaser will be required to assume.
11. COVENANTS OF THE SELLERS AND THE STOCKHOLDERS. The Sellers and
the Stockholders covenant that, between the date of this Agreement and the
Closing, they will:
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(a) Carry on the business of the Office in the ordinary
course;
(b) With Sellers' approval which will not be unreasonably
withheld and subject to any attorney client privilege, give Purchaser and its
attorneys, auditors and other representatives full access during normal
business hours to the Office and to the properties, books, contracts,
commitments and records pertaining to the Office;
(c) With Sellers' approval which will not be unreasonably
withheld and subject to any attorney client privilege, provide Purchaser with
access to such information concerning the affairs of the Office as Purchaser
may reasonably request, including authorizing the Sellers' auditors, attorneys
and other representatives to cooperate with Purchaser's auditors and attorneys
and other representatives and authorizing the Sellers' auditors to give
Purchaser's auditors full access to their files and working papers with respect
to the Office;
(d) Do all reasonable things and cause all reasonable things
to be done to ensure that the warranties and representations of the Sellers and
the Stockholders contained in this Agreement remain true and correct throughout
the period until Closing, as if such representations and warranties were
continuously made throughout such period;
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(e) Not enter into any new contracts, commitments or
transactions pertaining to the Office, except in the ordinary course of
business;
(f) Not sell, agree to sell, or otherwise dispose of any of
the Assets (other than supplies used or sold in the ordinary course of
business), without the prior written consent of Purchaser;
(g) Use best efforts to obtain the releases of all mortgages,
liens, security interests, pledges, charges, obligations, and other
encumbrances set forth in Schedule 5;
(h) Not create or assume any new pledge, lien, or encumbrance
with respect to the Assets;
(i) Maintain the Assets in as good repair, order, and
condition as they were in as of the date of this Agreement, reasonable wear and
use and damage by fire, acts of God, or other casualty excepted;
(j) Not incur any indebtedness, obligations, or liability with
respect to the Office or Assets or make any payment in respect thereof, except
in the ordinary course of business;
(k) Pay, satisfy, and discharge the current obligations and
liabilities of the Office in the ordinary course of business, including but not
limited to royalties accruing under the Franchise Agreements and any other
amounts payable to Purchaser and its affiliates;
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(l) File all federal, state, and local tax returns which
become due prior to the Closing, and pay all taxes shown by those returns to be
due and payable, together with any interest or penalties which may be assessed
by taxing authorities on any taxes which were not timely paid;
(m) Maintain or cause to be maintained in full force and
effect all of the fire and other insurance on property and all of the
liability and other casualty insurance (including any bonds on personnel) that
was in effect with respect to the Office as of the date of this Agreement;
(n) Use reasonable efforts to preserve intact the Sellers'
business organization and the goodwill of the Sellers' Clients and suppliers;
(o) Conduct advertising and promotion for the Office
consistent with the amount and type of such advertising and promotion conducted
during the twelve months prior to the date of this Agreement;
(p) Maintain the books of account and records of the Office in
the usual manner;
(q) Promptly, at Purchaser's request, join and cooperate in
any application which Purchaser may make in order to ensure the timely transfer
of any licenses, permits, or certificates to Purchaser at Closing;
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(r) Promptly advise Purchaser in writing of any material
adverse change with respect to the Office, the Assets, or the financial
condition of the Sellers; and
(s) Deliver to Purchaser prompt written notice of any event or
condition known to either the Sellers or to any of the Stockholders which, if
it had existed on the date of execution of this Agreement, would have
constituted a breach of any of their representations and warranties under this
Agreement.
12. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser
represents and warrants as follows:
(a) Purchaser has been duly organized and is validly existing
and in good standing under the laws of the Commonwealth of Pennsylvania.
Purchaser is qualified to do business and is in good standing under the laws of
the State of Texas, where it has its headquarters. Purchaser's wholly owned
subsidiary Advance Processing Systems, Inc. is qualified to do business and is
in good standing under the laws of the State of Illinois;
(b) The execution, delivery and performance of this Agreement
have been duly authorized by the Board of Directors of Purchaser, and Purchaser
has the complete and unrestricted power and authority to, and has taken all
corporate action necessary to enter into, execute and deliver this Agreement
and to perform all of its obligations hereunder and to consummate all
transactions contemplated herein; and
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(c) This Agreement and the other agreements and transactions
contemplated herein to which Purchaser is or will be a party will each, upon
execution and delivery, be a legal, valid and binding obligation of Purchaser
enforceable in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally. This Agreement does not conflict with any other
agreement affecting Purchaser.
13. COVENANTS OF PURCHASER. Purchaser covenants that, between the
date of this Agreement and the Closing:
(a) Purchaser will offer to hire the employees of the Sellers
listed on Schedule 6, subject to Purchaser's ordinary pre-employment and post-
employment standards and conditions, at rates of pay and with benefits
consistent with those of similarly-situated employees of Purchaser. Purchaser
shall have no obligation to offer employment to any specific individual listed
in Schedule 6 who does not meet Purchaser's ordinary standards and conditions,
or to offer any individual on Schedule 6 pay or benefits comparable to those
identified in such Schedule. Purchaser assumes no liability for any wages or
other benefits (including but not limited to bonuses, vacations, sick leave,
retirement benefits, and medical benefits) accrued by any person listed in
Schedule 6 during such person's employment by the Sellers. Purchaser shall
recognize the original date of hire of employees shown on Schedule 6 and
employed after Closing by Purchaser for purpose of service related benefits
by Purchaser;
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(b) Purchaser shall use reasonable efforts to assist the
Sellers in obtaining necessary consents and approvals to the assignment of the
Lease and the Assumed Contracts and any other rights which are to be assumed by
Purchaser in accordance with this Agreement;
(c) Purchaser shall make applications to such governmental
authorities and agencies as Purchaser deems appropriate to ensure that
licenses, permits, and certificates held by the Sellers are transferred to
Purchaser as of the Closing, and at the request of the Sellers shall join and
cooperate in any such application which the Sellers may make; and
(d) Purchaser shall do all reasonable things and cause all
reasonable things to be done to ensure that the warranties and representations
of Purchaser contained in this Agreement remain true and correct throughout the
period until Closing, as if such representations and warranties were
continuously made throughout such period.
14. INDEMNITY BY THE SELLERS AND THE STOCKHOLDERS. Without limiting
any of their other obligations under this Agreement, the Sellers and the
Stockholders, individually agree to indemnify and hold harmless Purchaser and
its affiliates, Officers, directors, Stockholders and employees against and
from any loss, liability, damages, cost or expense incurred by them (including,
but not limited to, reasonable attorneys' and accounting fees and expenses)
based upon, arising out of, or relating to: (i) any materially inaccurate,
untruthful or erroneous representation or warranty of the Sellers or the
Stockholders set forth in this Agreement or any certificate or document
delivered pursuant to this Agreement; (ii) any material failure
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to perform with respect to any of the covenants, conditions or agreements of
the Sellers or the Stockholders set forth in this Agreement, or any transaction
contemplated in this Agreement, except that each Stockholder shall be liable to
Purchaser only for Sellers' or Stockholders' individual conduct and compliance
with the non-compete provisions of this Agreement subsequent to the Closing; or
(iii) the ownership or operation of the Office through the Closing Date.
15. INDEMNITY BY PURCHASER. Purchaser agrees to indemnify and hold
harmless the Sellers and the Stockholders against and from any loss, liability,
damages, cost or expense incurred by them (including but not limited to
reasonable legal, attorneys' and accounting fees and expenses) based upon,
arising out of, or relating to: (i) any breach of any representation or
warranty of Purchaser set forth in this Agreement or any certificate or
document delivered pursuant to this Agreement; (ii) the breach of any covenant
or agreement of Purchaser set forth in this Agreement; or (iii) the ownership
or operation of the Office after the Closing Date.
16. TERMINATION OF AGREEMENTS. The Sellers and the Purchaser agree,
that upon completion of the Closing, the Franchise Agreements and any other
agreements relating to the Franchise will terminate without separate notice to
any party as of the Closing Date, subject to the post-termination obligations
of the Sellers and Purchaser under the Franchise Agreement and any other
agreements, including but not limited to SIP. If the parties fail to Close for
any reason, the Franchise Agreement, SIP Agreement, and any other agreements
thereto, shall remain in full force and effect in accordance with their terms.
26
<PAGE> 27
17. LOSS OR DESTRUCTION. Sellers shall continue to own and operate
the Offices until the Closing Date. Sellers shall assume all risk of loss,
destruction, or damage due to fire or other casualty until such date.
Purchaser shall have the right to cancel this Agreement if the Offices are
interrupted prior to said date by loss, destruction, or damage due to fire or
other casualty. If Purchaser does not exercise its right to cancel, as stated
herein, Purchaser shall take the Assets in the existing condition, together
with any insurance proceeds payable by virtue of such loss or damage.
18. CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE. The
obligation of Purchaser to consummate the transactions herein contemplated is,
at Purchaser's option, subject to the following express conditions precedent:
(a) The Assets shall be free and clear of all mortgages,
liens, security interests, pledges, charges, obligations and other
encumbrances;
(b) The representations and warranties of the Sellers and the
Stockholders contained in this Agreement shall be true in all material respects
at and as of Closing, as though such representations and warranties had been
made at and as of the Closing;
(c) The Sellers and the Stockholders shall have delivered all
of the items to be delivered by them to Purchaser at Closing pursuant to
Subsection 8 above, and shall not be in default under any other provision of
this Agreement at or prior to Closing;
27
<PAGE> 28
(d) The Assets shall not have been damaged as the result of
any act of God, fire, flood, war, labor disturbance or similar calamity (unless
Purchaser has waived the event), and there shall have been no material adverse
changes in the Assets, the Office, or the financial condition of the Sellers
since the execution of this Agreement;
(e) Purchaser has obtained approval of its Senior Lenders for
this transaction; and
(f) Sellers shall have delivered to Purchaser executed UCC-3
statements for any liens on Sellers' Assets.
19. CONDITIONS PRECEDENT TO THE SELLERS' OBLIGATION TO CLOSE. The
obligation of the Sellers to consummate the transactions contemplated herein at
Closing is, at the option of the Sellers, subject to the following express
conditions precedent:
(a) The representations and warranties of Purchaser contained
in this Agreement were true when made and shall be true in all material
respects at and as of Closing, as though such representations and warranties
had been made at and as of Closing; and
28
<PAGE> 29
(b) Purchaser shall have delivered all of the items to be
delivered by it to the Sellers and the Stockholders at Closing pursuant to
Subsection 9 above, and shall not be in default under any other provisions of
this Agreement at or prior to Closing.
20. ADDITIONAL POST-CLOSING RESPONSIBILITIES. The parties shall
comply with the following obligations after the Closing:
(a) At Purchaser's request, without further consideration, the
Sellers and the Stockholders will execute and deliver after Closing such
further instruments of conveyance and transfer and take such other action as
Purchaser may reasonably require for the transfer of the Assets;
(b) At the request of Sellers, without further consideration,
Purchaser will execute and deliver after Closing such further evidence as the
Sellers may reasonably require of Purchaser's assumption of the Lease and the
Assumed Contracts;
(c) For ninety (90) days after the Closing Date at Purchaser's
request, the Sellers and the Stockholders shall assist Purchaser in every
reasonable manner in billing and collection efforts and in maintaining the
business relationships presently enjoyed by the Sellers and the Stockholders
with respect to the Office;
29
<PAGE> 30
(d) Except for assisting Professional Staffing Services
initially in the implementation of Spectrum Software, the Sellers and the
Stockholders agree that for a period of three (3) years after the Closing
Date, they will not, directly or indirectly:
(i) own, operate, manage, be employed by, engage in,
provide assistance to, or have a financial interest in any temporary employment
services business, permanent placement business, or similar business within the
county(s) of COOK, DUPAGE AND MCHENRY, in the State of Illinois and within the
county(s) of KALAMAZOO, in the State of Michigan, so long as Purchaser, or a
person or entity deriving title from Purchaser to operate the Office, continues
to operate the Office. For purposes of this provision "temporary employment
services business" includes, but is not limited to, "employee leasing," "temp-
to-hire," and "contract temporary" services;
(ii) solicit employment services business from any
client with whom the Office did business, if such client placed an order with
Sellers within the three (3) year period prior to the Closing Date; or
(iii) for a period of three (3) years employ or seek to
employ any employee of the Office or Purchaser or in any other manner attempt,
directly or indirectly, to influence, induce or encourage any employee to leave
the employment of the Office or Purchaser.
(e) Within fourteen (14) days subsequent to Closing, Sellers
shall provide to Purchaser an affidavit stating that all state and local taxes
due through the Closing Date have been paid. Sellers shall timely file all
federal, state and local tax returns relating to the period through the Closing
Date which become due after the Closing Date; shall timely pay all taxes shown
by such returns to be due and payable,
30
<PAGE> 31
together with any interest or penalties which may be assessed by taxing
authorities on any taxes which were not timely paid; and shall deliver to
Purchaser copies of all tax clearance letters and closing notices received from
government authorities which relate to the Office; and
(f) Provide Sellers with the quarterly compliance report
provided Purchaser's senior lenders in accordance with Purchaser's loan
agreement, contemporaneous with submission to the senior lenders.
(g) (i) Sellers and Brett S. Hardt ("Hardt") hereby each
acknowledges, covenants, agrees and authorizes, that if Hardt breaches or
causes Sellers to breach Subsection 20(d) of this Agreement, Purchaser shall
have the right to withhold payment under the Rolling Meadows Note, the
Kalamazoo Note, the Des Plaines Note and all other amounts otherwise payable by
Purchaser to Sellers and the Stockholders, whether or not evidenced by a note
(collectively, the "Note Amounts"); and upon determination of the amount of any
damages sustained by Purchaser because of such breach of Subsection 20(d),
Purchaser shall have the right to offset and retain such damages against an
aggregate amount, which shall equal fifty percent (50%) of the aggregate amount
of all outstanding principal due and owing under and pursuant to the Note
Amounts.
(ii) Sellers and Jeff Albrecht ("Albrecht") hereby each
acknowledges, covenants, agrees and authorizes, that if Albrecht breaches or
causes Sellers to breach Subsection 20(d) of this Agreement, Purchaser shall
have the right to withhold payment under the Rolling Meadows Note, the
Kalamazoo Note, the Des Plaines Note and all other amounts otherwise payable by
Purchaser to Sellers
31
<PAGE> 32
and the Stockholders, whether or not evidenced by a note (collectively, the
"Note Amounts"); and upon determination of the amount of any damages sustained
by Purchaser because of such breach of Subsection 20(d), Purchaser shall have
the right to offset and retain such damages against an aggregate amount, which
shall equal fifty percent (50%) of the aggregate amount of all outstanding
principal due and owing under and pursuant to the Note Amounts.
(iii) Sellers and Stockholders each hereby further acknowledge,
covenant and agree that Purchaser shall retain the above-stated rights of
offset and that Purchaser shall not be in breach of the terms of this Agreement
until resolution of the breach of Subsection 20(d) occurs, whether by
agreement, compromise, settlement or final unappealable judgment.
(iv) The withholding of Note payments to either or both
Stockholders and the establishment of actual damages shall be in addition to
all other rights of Purchaser whether at law or in equity.
21. NOTICES. All notices pursuant to this Agreement shall be sent in
writing to addresses set forth below, unless changed by written notice in
accordance with this Section 21. Any notice sent by telecopy shall be
confirmed by mail. To Sellers and/or the Stockholders:
BRETT HARDT
------------------------------------
21839 WEST RIVERIA COURT
------------------------------------
IVANHOE, ILLINOIS 60060
------------------------------------
32
<PAGE> 33
JEFF ALBRECHT
------------------------------------
412 HILL COURT
------------------------------------
WAUCONDA, ILLINOIS 60084
------------------------------------
To Purchaser: SNELLING AND SNELLING, INC.
------------------------------------
12801 N. CENTRAL EXPRESSWAY
------------------------------------
SUITE 700
------------------------------------
DALLAS, TEXAS 75243
------------------------------------
ATTN: RICHARD H. SPRAGINS
------------------------------------
Telecopy No.: (214)239-6879
22. TERMINATION. (a) The Sellers or Purchaser may terminate this
Agreement by written notice to the other in the event the transactions
contemplated herein have not closed by NOVEMBER 15, 1996; and
(b) This Agreement may also be terminated at any time prior to
the Closing date:
(i) By mutual consent of Purchaser and Sellers;
(ii) By the Purchaser, if any of the conditions of its
obligations hereunder shall not have been satisfied at or prior to the Closing
on the Closing Date and shall not have been waived by it; and
(iii) By the Sellers, if any of the conditions of its
obligations hereunder shall not have been satisfied at or prior to the Closing
on the Closing Date, or if the senior lender approval by this Agreement shall
not have been obtained by Purchaser and the requirements shall not have been
waived by it.
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<PAGE> 34
(c) Such notice of termination shall be effective as to all
parties to this Agreement, whether or not they receive notice individually. If
this Agreement is terminated by the Sellers or by Purchaser for the reason
stated above without consummation of the transactions contemplated herein, such
termination shall be without liability or further obligation by any party to
any other party to this Agreement.
23. GENERAL PROVISIONS. (a) Each party shall bear its own legal
and other costs and expenses in connection with the negotiation, preparation
and execution of this Agreement, and the performance of the transactions
contemplated hereby;
(b) This Agreement and the documents referred to herein
constitute the entire agreement among the parties with respect to the sale and
purchase of the Assets and supersede all previous written or oral negotiations,
commitments, and writing concerning the same subject matter;
(c) This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument;
(d) This Agreement may be amended only in writing and
executed by all of the parties;
(e) This Agreement will inure to the benefit of, and bind, the
respective heirs, personal representatives, successors and permitted assigns of
the parties;
34
<PAGE> 35
(f) The parties represent that no person is entitled to any
brokerage commission, finder's fee, or any other like payment in connection
with any transaction contemplated by this Agreement, by reason of the action of
any party to this Agreement; and
(g) This Agreement shall be governed by the laws of the State
of Texas.
24. MEDIATION AND ARBITRATION. THE PARTIES AGREE THAT ANY AND ALL
DISPUTES, CLAIMS OR CONTROVERSIES ARISING OUT OF OR RELATING TO THIS AGREEMENT
SHALL BE SUBMITTED TO J.A.M.S/ENDISPUTE, OR ITS SUCCESSOR, FOR MEDIATION, AND
IF THE MATTER IS NOT RESOLVED THROUGH MEDIATION, THEN IT SHALL BE SUBMITTED TO
J.A.M.S./ENDISPUTE, OR ITS SUCCESSOR, FOR FINAL AND BINDING ARBITRATION.
EITHER PARTY MAY COMMENCE MEDIATION BY PROVIDING TO J.A.M.S/ENDISPUTE, AND THE
OTHER PARTY A WRITTEN REQUEST FOR MEDIATION, SETTING FORTH THE SUBJECT OF THE
DISPUTE AND THE RELIEF REQUESTED. THE PARTIES WILL COOPERATE WITH
J.A.M.S/ENDISPUTE AND WITH ONE ANOTHER IN SELECTING A MEDIATOR FROM
J.A.M.S/ENDISPUTE'S PANEL OF NEUTRALS, AND IN SCHEDULING THE MEDIATION
PROCEEDINGS. THE PARTIES COVENANT THAT THEY WILL PARTICIPATE IN THE MEDIATION
IN GOOD FAITH, AND THAT THEY WILL SHARE EQUALLY IN ITS COSTS. ALL OFFERS,
PROMISES, CONDUCT AND STATEMENTS, WHETHER ORAL OR WRITTEN, MADE IN THE COURSE
OF THE MEDIATION BY ANY OF THE PARTIES, THEIR AGENTS, EMPLOYEES, EXPERTS AND
ATTORNEYS, AND BY THE MEDIATOR OR ANY J.A.M.S/ENDISPUTE EMPLOYEES, ARE
CONFIDENTIAL, PRIVILEGED AND INADMISSIBLE FOR ANY PURPOSE, INCLUDING
IMPEACHMENT, IN ANY ARBITRATION OR OTHER PROCEEDING INVOLVING THE PARTIES,
PROVIDED THAT EVIDENCE THAT IS OTHERWISE ADMISSIBLE OR DISCOVERABLE SHALL NOT
BE RENDERED INADMISSIBLE OR NON-DISCOVERABLE AS A RESULT OF ITS USE IN THE
MEDIATION.
35
<PAGE> 36
THE PARTIES AGREE THAT ANY AND ALL DISPUTES, CLAIMS OR CONTROVERSIES ARISING
OUT OF OR RELATING TO THIS AGREEMENT THAT ARE NOT RESOLVED BY THEIR MUTUAL
AGREEMENT OR MANDATORY OR REASONABLE MEDIATION SET FORTH ABOVE, SHALL BE
SUBMITTED TO FINAL AND BINDING ARBITRATION BEFORE J.A.M.S/ENDISPUTE, OR ITS
SUCCESSOR, PURSUANT TO THE UNITED STATES ARBITRATION ACT, 9 U.S.C. SEC. 1 ET
SEQ. EITHER PARTY MAY COMMENCE THE ARBITRATION PROCESS CALLED FOR IN THIS
AGREEMENT BY FILING A WRITTEN DEMAND FOR ARBITRATION WITH J.A.M.S/ENDISPUTE,
WITH A COPY TO THE OTHER PARTY. THE ARBITRATION WILL BE CONDUCTED IN
ACCORDANCE WITH THE PROVISION OF J.A.M.S/ENDISPUTE'S COMPREHENSIVE ARBITRATION
RULES AND PROCEDURES IN EFFECT AT THE TIME OF FILING OF THE DEMAND FOR
ARBITRATION. THE PARTIES WILL COOPERATE WITH J.A.M.S/ENDISPUTE AND WITH ONE
ANOTHER IN SELECTING AN ARBITRATOR FROM J.A.M.S/ENDISPUTE'S PANEL OF NEUTRALS,
AND IN SCHEDULING THE ARBITRATION PROCEEDINGS. THE PARTIES COVENANT THAT THEY
WILL PARTICIPATE IN THE ARBITRATION IN GOOD FAITH, AND THAT THEY WILL SHARE
EQUALLY IN ITS COSTS. THE PROVISIONS OF THIS PARAGRAPH MAY BE ENFORCED BY ANY
COURT OF COMPETENT JURISDICTION, AND THE PARTY SEEKING ENFORCEMENT SHALL BE
ENTITLED TO AN AWARD OF ALL COSTS, FEES AND EXPENSES, INCLUDING ATTORNEYS FEES,
TO BE PAID BY THE PARTY AGAINST WHOM ENFORCEMENT IS ORDERED.
25. CONFIDENTIALITY. Neither Purchaser nor Sellers, nor any of
their respective Stockholders, affiliates, Officers, employees, agents or
representatives shall: (a) make any press releases or any published statement
concerning the transactions contemplated herein without the prior written
consent of all of the parties hereto, which consent shall not be withheld where
such press releases or statement is required by applicable law; or (b) disclose
the terms or existence of this Agreement to any person or entity, other than to
their respective attorneys and other representatives, and to those parties such
as bankers and
36
<PAGE> 37
lessors with whom they must communicate in order to consummate the proposed
transactions. Purchaser and Sellers shall be permitted to discuss the
transactions contemplated herein with their respective suppliers and vendors,
provided that they instruct such suppliers and vendors to keep all such
communications confidential.
26. BULK TRANSFER LAWS. The parties waive compliance with the
requirements of the bulk transfer or bulk sales law of any jurisdiction in
connection with the sale of the Assets to Purchaser under this Agreement.
Sellers shall indemnify and hold Purchaser harmless against any and all losses
incurred by Purchaser as a result of noncompliance with any such laws.
27. RELEASE BY SELLERS AND STOCKHOLDERS. The Sellers and each
Stockholder, for themselves and on behalf of their officers, directors,
employees, successors, representatives, and agents, do hereby irrevocably and
unconditionally release, acquit, and forever discharge (the "Release")
Purchaser, its officers, directors, stockholders, employees, successors,
representatives, and agents from any and all claims, debts, damages, demands,
liabilities, suits in equity, complaints, grievances, obligations, promises,
agreements, rights, controversies, consents, losses, damages, attorneys' fees
and expenses, punitive damages and other compensation, suits, appeals, actions,
and causes of actions, of whatever kind of character, whether heretofore or
hereafter accruing, whether known or unknown, suspected or unsuspected,
specified or unspecified, fixed or contingent, liquidated or unliquidated, for
or because of any matter or thing done, omitted, or suffered to be done by,
Purchaser, its officers, directors, stockholders, employees, successors,
representatives, and agents, for any incidents, including those past and
present, which may have existed prior
37
<PAGE> 38
to, or contemporaneously with, the execution of this Agreement, or subsequent
to the execution of this Agreement if arising out of conduct occurring before
the execution of this Agreement. The Sellers and each Stockholder hereby
represent that nothing which is released hereunder has been transferred,
assigned, or given away prior to the date hereof to any person, firm, or
entity.
(a) It is the intention of the Sellers and each Stockholder in
executing this Agreement that the Release shall be effective as a bar to each
and every claim, demand, and cause of action hereinabove specified, and the
Sellers and each Stockholder hereby knowingly and voluntarily waive any and all
rights and benefits. The Sellers and each Stockholder expressly consent that,
this release shall be given full force and effect according to each and all of
its express terms and provisions, including those relating to unknown and
unspecified claims, demands, and causes of action. The Sellers and each
Stockholder acknowledge and agree that this waiver is an essential and material
term of the Release of this Agreement and without the waiver of transaction
contemplated by this Agreement would not be consummated.
28. RELEASE BY PURCHASER. The Purchaser, for itself and on
behalf of their officers, directors, employees, successors, representatives,
and agents, do hereby irrevocably and unconditionally release, acquit, and
forever discharge (the "Release") the Sellers and Stockholders, its officers,
directors, employees, successors, representatives, and agents from any and all
claims, debts, damages, demands, liabilities, suits in equity, complaints,
grievances, obligations, promises, agreements, rights, controversies, consents,
losses, damages, attorneys' fees and expenses, punitive damages and other
compensation, suits, appeals, actions, and causes of actions, of whatever kind
of character, whether heretofore or hereafter accruing, whether
38
<PAGE> 39
known or unknown, suspected or unsuspected, specified or unspecified, fixed or
contingent, liquidated or unliquidated, for or because of any matter or thing
done, omitted, or suffered to be done by, the Sellers and Stockholders, its
officers, directors, employees, successors, representatives, and agents, for
any incidents, including those past and present, which may have existed prior
to, or contemporaneously with, the execution of this Agreement, or subsequent
to the execution of this Agreement if arising out of conduct occurring before
the execution of this Agreement. The Purchaser hereby represents that nothing
which is released hereunder has been transferred, assigned, or given away prior
to the date hereof to any person, firm, or entity.
(a) It is the intention of the Purchaser in executing this Agreement
that the Release shall be effective as a bar to each and every claim, demand,
and cause of action hereinabove specified, and the Purchaser hereby knowingly
and voluntarily waives any and all rights and benefits. The Purchaser
expressly consents that, this release shall be given full force and effect
according to each and all of its express terms and provisions, including those
relating to unknown and unspecified claims, demands, and causes of action. The
Purchaser acknowledges and agrees that this waiver is an essential and material
term of the Release of this Agreement and without the waiver of transaction
contemplated by this Agreement would not be consummated.
29. SURVIVAL OF REPRESENTATIONS. All representations, warranties and
agreements made by the parties hereto, shall survive Closing.
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<PAGE> 40
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
under seal of the date first written above.
KAL HELP ENTERPRISES, INC. Stockholders:
By: /s/ BRETT S. HARDT By: /s/ BRETT S. HARDT
-------------------------- -----------------------------
Brett S. Hardt Brett S. Hardt
President
By: /s/ JEFF ALBRECHT
-----------------------------
Jeff Albrecht
SNELLING AND SNELLING, INC.
By: /s/ RICHARD H. SPRAGINS
-------------------------
Richard H. Spragins
Senior Vice President
<PAGE> 41
SCHEDULE 1
to
ASSET PURCHASE AGREEMENT
with
KAL HELP ENTERPRISES, INC.
TANGIBLE ASSETS
(ATTACHED)
<PAGE> 1
EXHIBIT 10.23
ASSET PURCHASE AGREEMENT
BETWEEN
PAR THREE HELP SERVICES, INC.
(THE "SELLERS")
AND BRETT S. HARDT AND JEFF ALBRECHT
(THE "STOCKHOLDERS")
AND
SNELLING AND SNELLING, INC. ("PURCHASER")
1
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2. Sale and Transfer of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3. Assumption of Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4. Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5. Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6. Allocation of Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7. Collection of Accounts Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8. Closing Deliveries by the Sellers and Stockholders . . . . . . . . . . . . . . . . . . . . . . . 11
9. Closing Deliveries by Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
10. Representations and Warranties of the Sellers
and the Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
11. Covenants of the Sellers and the Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . 19
12. Representations and Warranties of Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
13. Covenants of Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
14. Indemnity by the Sellers and the Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . 25
15. Indemnity by Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
16. Termination of Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
17. Loss or Destruction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
18. Conditions Precedent to Purchaser's
Obligation to Close . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
19. Conditions Precedent to the Sellers'
Obligation to Close . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
20. Additional Post-Closing Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
21. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
22. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
23. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
24. Mediation and Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
25. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
26. Bulk Transfer Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
27. Release by Sellers and Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
28. Release by Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
29. Survival of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
</TABLE>
2
<PAGE> 3
SCHEDULES
<TABLE>
<S> <C> <C>
Schedule 1 - Tangible Assets
Schedule 2 - Assumed Contracts
Schedule 3 - List of Receivables to be Delivered at Closing
Schedule 4 - Allocation of Purchase Price
Schedule 5 - Encumbrances
Schedule 6 - Employees
Schedule 7 - Promissory Note
Schedule 8 - Subordination Agreement
</TABLE>
3
<PAGE> 4
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is entered into
effective as of this 16th day of October 1996, by and among Par Three Help
Services, Inc., an Illinois corporation (the "Sellers"), and BRETT S. HARDT
AND JEFF ALBRECHT (the "Stockholders"), on one hand, and SNELLING AND SNELLING,
INC. ("Purchaser"), a Pennsylvania corporation, on the other hand.
RECITALS
WHEREAS Sellers are operating one (1) "Snelling Personnel
Services" office (the "Office") pursuant to a certain franchise agreement with
Purchaser at the following location:
<TABLE>
<CAPTION>
Office No. Location of Office. Date of Franchise Agreement.
- ---------- ------------------- ----------------------------
<S> <C> <C>
F0266 999 East Touhy Avenue September 23, 1994
Suite 160
Des Plaines, IL 60018
</TABLE>
WHEREAS, Stockholders are the owners of one hundred percent
(100%) of the issued and outstanding common stock of Sellers;
WHEREAS, Sellers desire to sell, transfer, convey and assign to
Purchaser, and Purchaser desires to purchase, under the terms and conditions
set forth herein, all of the assets of Sellers associated with the Office,
including the trademarks, service marks, and trade names, if any, and the good
will associated with the Office;
4
<PAGE> 5
WHEREAS, Sellers' franchise agreement with Purchaser is referred to in
this Agreement as the "Franchise Agreement."
WHEREAS, Purchaser also desires to obtain assignments of certain
contracts and agreements relating to the operation of Sellers' Office and
agrees to assume certain of Sellers' obligations and liabilities.
NOW, THEREFORE, FOR AND IN CONSIDERATION of the mutual promises
contained herein, the parties agree as follows:
1. DEFINITIONS. The following words shall have the following
meanings when used in this Agreement:
(a) "Assets" shall mean all of the rights, title and
interest of Sellers in the assets, properties, rights, claims and contracts of
every kind, character and description, whether real or personal, tangible or
intangible, which are used or usable in, or relate to, the operation of the
Office, without regard to whether reflected on the Sellers' financial
statements or books. Specifically excluded from the Assets being sold
hereunder are any accounts receivable of the Sellers related to work performed
or services provided through the close of business of the day immediately prior
to the Closing Date. Assets being acquired by Purchaser are:
(i) the tangible assets set forth and identified
as being acquired by Purchaser in Schedule 1 to this Agreement;
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(ii) all contracts and relationships of Sellers
with clients and with temporary employees (as those terms are defined in the
Franchise Agreement);
(iii) Sellers' rights in and to the telephone
numbers and telephone directory advertising for the Office, and all other
intangible property, trade secrets, rights under Assumed Contracts (as defined
in Section 3), permits, and licenses associated with the Office;
(iv) any Internet names registered by Sellers;
(v) all of Sellers' trade names, trademarks, or
service marks used, or available for use, in Sellers' business;
(vi) the rights of the Sellers under the
assumption of the Lease of real property relating to the Office (the "Lease");
(vii) all inventory and supplies on hand as of the
Closing Date;
(viii) all business papers and records pertaining to
the Office, including but not limited to personnel records (including payroll
records) concerning each employee of the Sellers who will become employed by
the Purchaser after the Closing Date, client records, vendor lists, and
operations manuals; and
(ix) all Placement Receipts, if any, (as that term
is defined in the Franchise Agreement) except for those for which the employee
has both been offered permanent employment by a client and accepted such offer
of employment on or before the Closing Date.
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(b) "Closing" shall mean the events which take place for
the purpose of consummating the transactions contemplated by this Agreement,
commencing at 9:00 a.m. on Monday, November 4, 1996, at CHICAGO, ILLINOIS, or
at another acceptable time and location to which the parties agree; and
(c) "Closing Date" shall mean 12:01 a.m. on Monday,
November 4, 1996.
2. SALE AND TRANSFER OF CERTAIN ASSETS. Upon the terms and
subject to the conditions set forth in this Agreement, the Sellers agree to
sell, transfer, assign, grant, convey and deliver the tangible Assets listed on
Schedule 1 and all other Assets listed in Subsection 1(a) to Purchaser on the
Closing Date, free and clear of all mortgages, liens, security interests,
pledges, charges and other encumbrances. Notwithstanding any language that may
be stated in this Agreement, Sellers' accounts receivable as that term is
described herein, are not an Asset being sold, transferred, assigned, granted,
or conveyed to Purchaser.
3. ASSUMPTION OF LIABILITIES. Purchaser has not assumed, and
shall not assume, any liability or obligation of any nature, known or unknown,
existing or contingent, of the Sellers, except that, at Closing: (i) Purchaser
shall assume the Lease unless Purchaser notifies Sellers in writing within ten
(10) days of the Closing that Purchaser will not assume the Lease; and (ii) the
other written contracts and obligations specifically identified in Schedule 2
to this Agreement (the "Assumed Contracts"). Sellers shall assume and make
payments for the obligations for unused vacation and unused sick leave, if
any, accrued through the Closing Date by each employee of the Sellers. The
Sellers acknowledge that Purchaser does not assume any obligation in connection
with any actual or alleged breach or default of Lease or Assumed Contracts
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occurring at any time through the Closing Date. Except for the items specified
in clauses (i) and (ii) above, all obligations, liens, encumbrances, and
liabilities of the Sellers shall continue to be the sole responsibility of the
Sellers and Sellers shall hold Purchaser harmless.
4. PURCHASE PRICE. In reliance upon the representations
and warranties for the assets named herein, Purchaser shall pay the Sellers
Three Million Two Hundred Twenty-Five Thousand Dollars ($ 3,225,000) (the
"Purchase Price") plus interest as provided in Subsection 4(b)(i) below. The
Purchase Price shall be paid as follows:
(a) At Closing, Purchaser shall pay the Sellers One
Million Thirty-Three Thousand Dollars ($1,033,000) in cash by certified check;
(b) At Closing, Purchaser shall deliver to Sellers a
subordinated promissory note (the "Note") in the amount of Two Million One
HundredNinety-Two Thousand Dollars ($2,192,000). Terms of the Note are as
follows:
(i) Interest at prime based upon the prime rate
listed in the Wall Street Journal on the last business day preceding the
Closing;
(ii) One (1) payment in the amount of Six Hundred
Forty-Eight Thousand Dollars ($648,000) plus interest from the Closing Date to
be paid on January 2, 1997. The payment shall be by certified check sent
overnight by the close of business; and
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(iii) One (1) payment in the amount of One Million
Five Hundred Forty-Four Thousand Dollars ($1,544,000) plus interest from the
Closing Date to be paid on February 3, 1997. The payment shall be by certified
check sent overnight by the close of business.
5. ALLOCATION OF PURCHASE PRICE. In accordance with Section
1060 of the Internal Revenue Code of 1986, as amended, the Purchase Price shall
be allocated in the manner set forth in Schedule 4 to this Agreement. The
Sellers, the Stockholders, and Purchaser each covenant and warrant to each
other that: (i) in no tax return filed by the parties or any of their
respective successors or assigns shall the allocation of the Purchase Price be
treated or reported inconsistently with or differently from the allocation of
the Purchase Price set forth in Schedule 4, unless such change in allocation is
the result of a determination by a governing authority for that year or a
preceding year; and (ii) in no tax audit, tax examination, tax or compliance
review or tax litigation will the parties or any of their respective successors
or assigns claim or assert that the allocation of the Purchase Price is or
should be inconsistent with or different from that set forth in Schedule 4,
unless as a result of a determination made by a governing authority in a
preceding year. The parties agree to file all appropriate Internal Revenue
Service Forms with their respective Federal income tax returns for their
respective tax year in which the Closing occurs.
6. ALLOCATION OF EXPENSES. All real estate taxes, personal
property taxes, rents, telephone charges, utilities, and other costs and
expenses of owning or operating the Assets which relate to periods both before
and after the Closing Date (the "Prorated Costs") shall be prorated on a per
diem basis as of the Closing Date, with the Sellers responsible for the portion
of all such items which relates to the period
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through the Closing Date, and Purchaser responsible for the portion of all such
items which relates to the period after the Closing Date. Prorated Costs shall
be settled between Purchaser and Sellers either at Closing or as soon as
practicable thereafter; and
(a) Any sales tax, use tax, excise tax, transfer tax,
recording fee or other tax or fee imposed on the transfer of the Assets from
Sellers to Purchaser shall be paid by Sellers.
7. COLLECTION OF ACCOUNTS RECEIVABLE. With respect to the
accounts receivable for the placement of employees, Sellers shall be entitled
to all monies owed Sellers, as evidenced by the accounts receivable list at
time of Closing covering all work completed through Friday, October 25, 1996,
to be followed by a subsequent report covering accounts receivable up to
Closing, which shall be due Purchaser by Thursday, November 7, 1996.
Purchaser shall be entitled to all monies received from the generation of
accounts receivable subsequent to November 3, 1996; and
(a) As described above, Sellers shall provide at Closing
or immediately thereafter, a list of placement and temporary accounts
receivable due Sellers on the Closing Date. For ninety (90) days subsequent to
the Closing, Purchaser shall be responsible for the collection of such accounts
receivable and shall provide Sellers a weekly report accompanied by all monies
due Sellers in accordance with Sellers' Franchise Agreements with Purchaser
except that Sellers shall be responsible for all collection efforts with
inactive clients' accounts receivable which are over sixty (60) days old.
Inactive client shall be defined as a client who has not utilized the services
of Sellers within six (6) months of the Closing Date. Purchaser shall
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return to Sellers at the end of the ninety (90) day period all uncollected
accounts receivable for further collection efforts by Sellers. Purchaser shall
incur no liability to Sellers for the uncollectibility of said accounts
receivable. Thereafter, Sellers shall submit to Purchaser monthly reports of
all collection activity accompanied by all monies due Purchaser in accordance
with the provisions of the Franchise Agreement. Sellers shall receive credit
for all collections subsequent to Closing, whether by Sellers or Purchaser,
under the Sales Incentive Program Agreement ("SIP") and shall receive payment
in accordance with SIP; and
(b) Sellers shall have access to all records to assist
Sellers in the collection of certain accounts receivable or for litigation or
government filing purposes.
8. CLOSING DELIVERIES BY THE SELLERS AND THE STOCKHOLDERS. The
Sellers and the Stockholders agree to execute and deliver at Closing, or cause
to be executed and delivered at Closing, the following:
(a) Such instruments of transfer, assignment and conveyance
as shall be necessary or desirable in the judgment of Purchaser to vest in
Purchaser good and marketable title to the Assets free and clear of all
mortgages, liens, security interests, pledges, charges and other encumbrances.
Such instruments of transfer shall include:
(i) A Bill of Sale from the Sellers, in the form
furnished to the Sellers by Purchaser;
(ii) The written consent of the lessor to the
assignment and assumption of the Lease provided, however, if Sellers cannot
obtain any such assignment and assumption, Sellers shall assign
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any and all rights they have in the Lease. Sellers shall indemnify and hold
harmless Purchaser from any and all damages and costs incurred by Purchaser if
the lessor rejects the Sellers' assignment of its rights to Purchaser and
either reforms the Lease or terminates the Lease, so long as lessor's action is
based upon the assignment and not a breach by Purchaser of any of the terms of
the Lease Purchaser accepted from Sellers. Sellers shall use their best
efforts to obtain all such assignments and assumptions;
(iii) Cooperation of parties to receive written
consents of third parties under the Assumed Contracts to the assignment and
assumption of the Assumed Contracts as soon as possible;
(iv) Form UCC-3 termination statements, signed by
the creditor, to cancel any financing statements disclosed in Schedule 5 to
this Agreement (other than financing statements filed in connection with
Assumed Contracts);
(v) Unanimous written consents, signed by all
Stockholders of the Sellers, in a form consistent with the Sellers' bylaws and
state laws, approving the transactions contemplated hereunder, and any other
duly executed corporate and other documents which Purchaser may have reasonably
requested hereunder, satisfactory in form and substance, in the reasonable
judgment of Purchaser, and where appropriate certified by the proper corporate
or governmental authorities; and
(vi) The written consents of any other persons
whose approval or consent to the execution, delivery, and performance of this
Agreement by the Sellers is legally or contractually required.
(b) The originals of the Lease, and (if written) the
Assumed Contracts;
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(c) A certificate signed by the president of Sellers to
the effect that all representations and warranties of Sellers contained in this
Agreement are true at and as of Closing, that Sellers have performed all
agreements on its part required to be performed hereunder, and that Sellers are
not in default under any of the provisions of this Agreement;
(d) Copies of insurance policies conforming to Subsection
10(m);
(e) A letter to the telephone company servicing Sellers
requesting transfer to Purchaser of the telephone number (including numbers for
facsimile machines and modems) and listings applicable to the Office;
(f) List of accounts receivable as of the Closing Date as
provided in Section 7;
(g) Any names or addresses Sellers have registered for
use on the Internet; and
(h) No later than five (5) days prior to Closing, Sellers
shall submit to Purchaser such other instruments, documents or affidavits, in
form and substance reasonably acceptable to Purchaser, as may be necessary to
effect the Closing
9. CLOSING DELIVERIES BY PURCHASER. In addition to delivery of
the amount required under Subsection 4(a) above, Purchaser agrees to execute
and deliver at the Closing, or cause to be executed and delivered at Closing:
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(a) Immediately available funds in the amount provided in
Subsection 4(a);
(b) A Promissory Note in accordance with 4(b);
(c) Such instruments as shall be necessary or desirable
in the judgment of the Sellers to effect the assumption by Purchaser of the
Lease and the Assumed Contracts;
(d) Certified copy of resolutions duly adopted by the
Board of Directors of Purchaser authorizing the execution and delivery of this
Agreement and consummation of transactions described herein, which shall be in
full force and effect at the time of delivery;
(e) A certificate signed by the president of Purchaser to
the effect that all representations and warranties of Purchaser contained in
this Agreement are true at and as of Closing, that Purchaser has performed all
agreements on its part required to be performed hereunder, and that Purchaser
is not in default under any of the provisions of this Agreement;
(f) Written consent from the bank, approving the
transactions herein;
(g) Certified copy of resolutions authorizing Richard H.
Spragins to act or sign documents on behalf of Purchaser as an authorized
agent; and
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(h) With respect to Lease deposits, Sellers shall not
seek nor accept the return of the Lease deposit, or any part thereof, and
Purchaser shall pay to Sellers at Closing, among other payments, an amount
sufficient to cover Sellers' Lease deposit with Lessor. In the event lessor
terminated the Lease agreement and the termination is based upon the change of
lessees, Sellers shall request return of Lease deposit from lessor and return
to Purchaser the amount received from lessor.
10. REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE
STOCKHOLDERS. The Sellers and the Stockholders, jointly and severally,
represent and warrant as follows:
(a) The Sellers have been duly organized and are validly
existing and in good standing under the laws of the State of Illinois;
(b) The Stockholders together own all of the issued and
outstanding stock of the Sellers. The execution, delivery, and performance of
this Agreement have been duly authorized by the Board of Directors of the
Sellers, and all necessary Stockholders action under the Sellers' bylaws and
Illinois law has been taken for approval of the execution and delivery of this
Agreement by the Sellers, their performance of the terms of this Agreement, and
the consummation of the transactions contemplated hereunder;
(c) The execution and delivery of this Agreement, the
Sellers' performance hereunder, and the consummation of the transactions herein
contemplated, do not, and to the best of the Stockholders' knowledge will not
immediately or with the passage of time, the giving of notice or otherwise,
result in the
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breach of, constitute a default or violation under, or accelerate any
obligation under any agreement or other instruments to which either the Sellers
or any of the Stockholders are a party, or may be bound, so as to give or
create any rights in third parties with respect to the Assets;
(d) The Sellers have good title and right to use of all
trade names, trademarks or service marks used or available for use in Sellers'
Office, and neither the Sellers nor the Stockholders have notice of any claim
concerning a violation of or infringement upon the rights of any third party
with respect to the use of any trade name, trademark, service mark, copyright
or patent;
(e) This Agreement and the other agreements and
transactions contemplated herein to which the Sellers are or will be a party
will each, upon execution and delivery, be a legal, valid, and binding
obligation of the Sellers, enforceable in accordance with its terms, except as
may be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally;
(f) Except as disclosed in Schedule 5, the Sellers have
good and marketable title to the Assets free and clear of all mortgages, liens,
security interests, pledges, charges, obligations and other encumbrances;
(g) The Sellers have previously delivered to Purchaser
the Sellers' most recent federal income tax returns, balance sheets as of June
30, 1996, together with the Sellers' income statements for the fiscal year then
ended, and the interim balance sheets and income statements of the Sellers,
June 30, 1996,
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(collectively, the "Financial Statements"). The Financial Statements reflect
or provide for all material claims against, and all material debts and
liabilities relating to, the Office, fixed or contingent, as of the dates of
the Financial Statements. There has not been any change since the date of the
most recent Financial Statements which materially and adversely affected the
Office or the Assets or the financial condition or results of the operation of
the Sellers. The Financial Statements are true, correct and complete and were
prepared in good faith in accordance with a cash basis of accounting which
system is a comprehensive accounting method used by Sellers;
(h) The Sellers have filed all federal, state, and local
tax returns including income, sales, and payroll, which were required to be
filed prior to the date of this Agreement and have made payment of all taxes
shown by those returns to be due and payable;
(i) The Sellers have all requisite power and all known
necessary permits, certificates, contracts, approvals and other authorizations
required by federal, state, city, county or other municipal bodies to own,
lease, and use the Assets to operate the Office in the manner in which they are
presently operated;
(j) In connection with the operation of the Office and
ownership and use of the Assets, there are not now and have not been any
material failures to comply with any applicable known local, state or federal
laws, regulations, ordinances or administrative or judicial orders, and no
allegations have been made of any such failure;
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(k) Except for a dispute between Sellers and Frank
Schmidt and Tom Malloy regarding an Escrow Agreement in the amount of One
Thousand Five Hundred Dollars ($1,500.00), Sellers are not subject to any order
of any court or governmental authority; any pending or, to the best of the
Sellers' and the Stockholders' knowledge, threatened action, suit, proceeding,
inquiry or investigation at law or in equity; or any proceeding before any
court, arbitrator, public board or body, in which an unfavorable decision,
ruling or finding would, in any way, prevent the carrying out of this Agreement
or any of the transactions contemplated hereunder, declare unlawful any such
transactions, cause such transactions to be rescinded, have a material adverse
effect on the Office or the financial condition of the Sellers;
(l) Except for the Lease and the Assumed Contracts, and
the encumbrances listed in Schedule 5, there are no agreements, Lease,
contracts, charges, encumbrances or restrictions which may restrict Purchaser's
use or right to use any of the Assets or which create obligations for which
Purchaser could be liable;
(m) The Sellers have maintained liability insurance for
any claims which may have arisen or cause of action which may have accrued
during Sellers' ownership and/or operation of the Assets and the Office. Such
liability insurance is of the "occurrence" type, so that if the policies are
discontinued by the Sellers after the Closing Date, liability insurance
coverage will nevertheless continue (subject to the terms and conditions of
such policies) with respect to such claims and causes of action;
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(n) Neither this Agreement nor any Exhibit, Schedule, or
attachment hereto, nor any certificate or other information or document
furnished by or on behalf of the Sellers or the Stockholders knowingly contains
any untrue statement of a material fact, or knowingly omits to state a material
fact necessary in order to make the statements contained herein or therein not
misleading;
(o) Schedule 6 to this Agreement is a list of all persons
currently employed by the Sellers. Schedule 6 accurately and completely shows
the listed employees' current rates of compensation. Sellers have no
employment agreements with any of its employees which Purchaser will be
required to assume and has no oral or written understandings with any of its
employees which relate to terms or conditions of such employee's employment
which Purchaser will be required to assume. Purchaser has agreed to employ
under employment at will agreements for Sellers' staff employees; and
(p) The Sellers have no pension sharing plans or employee
benefit plans (as that term is defined in the federal law commonly known as the
Employees' Retirement Income Security Act, as amended) for any of its
employees, which Purchaser will be required to assume.
11. COVENANTS OF THE SELLERS AND THE STOCKHOLDERS. The Sellers
and the Stockholders covenant that, between the date of this Agreement and the
Closing, they will:
(a) Carry on the business of the Office in the ordinary
course;
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(b) With Sellers' approval which will not be unreasonably
withheld and subject to any attorney client privilege, give Purchaser and its
attorneys, auditors and other representatives full access during normal
business hours to the Office and to the properties, books, contracts,
commitments and records pertaining to the Office;
(c) With Sellers' approval which will not be unreasonably
withheld and subject to any attorney client privilege, provide Purchaser with
access to such information concerning the affairs of the Office as Purchaser
may reasonably request, including authorizing the Sellers' auditors, attorneys
and other representatives to cooperate with Purchaser's auditors and attorneys
and other representatives and authorizing the Sellers' auditors to give
Purchaser's auditors full access to their files and working papers with respect
to the Office;
(d) Do all reasonable things and cause all reasonable
things to be done to ensure that the warranties and representations of the
Sellers and the Stockholders contained in this Agreement remain true and
correct throughout the period until Closing, as if such representations and
warranties were continuously made throughout such period;
(e) Not enter into any new contracts, commitments or
transactions pertaining to the Office, except in the ordinary course of
business;
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(f) Not sell, agree to sell, or otherwise dispose of any
of the Assets (other than supplies used or sold in the ordinary course of
business), without the prior written consent of Purchaser;
(g) Use best efforts to obtain the releases of all
mortgages, liens, security interests, pledges, charges, obligations, and other
encumbrances set forth in Schedule 5;
(h) Not create or assume any new pledge, lien, or
encumbrance with respect to the Assets;
(i) Maintain the Assets in as good repair, order, and
condition as they were in as of the date of this Agreement, reasonable wear and
use and damage by fire, acts of God, or other casualty excepted;
(j) Not incur any indebtedness, obligations, or liability
with respect to the Office or Assets or make any payment in respect thereof,
except in the ordinary course of business;
(k) Pay, satisfy, and discharge the current obligations
and liabilities of the Office in the ordinary course of business, including but
not limited to royalties accruing under the Franchise Agreements and any other
amounts payable to Purchaser and its affiliates;
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(l) File all federal, state, and local tax returns which
become due prior to the Closing, and pay all taxes shown by those returns to be
due and payable, together with any interest or penalties which may be assessed
by taxing authorities on any taxes which were not timely paid;
(m) Maintain or cause to be maintained in full force and
effect all of the fire and other insurance on property and all of the
liability and other casualty insurance (including any bonds on personnel) that
was in effect with respect to the Office as of the date of this Agreement;
(n) Use reasonable efforts to preserve intact the
Sellers' business organization and the goodwill of the Sellers' Clients and
suppliers;
(o) Conduct advertising and promotion for the Office
consistent with the amount and type of such advertising and promotion conducted
during the twelve months prior to the date of this Agreement;
(p) Maintain the books of account and records of the
Office in the usual manner;
(q) Promptly, at Purchaser's request, join and cooperate
in any application which Purchaser may make in order to ensure the timely
transfer of any licenses, permits, or certificates to Purchaser at Closing;
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(r) Promptly advise Purchaser in writing of any material
adverse change with respect to the Office, the Assets, or the financial
condition of the Sellers; and
(s) Deliver to Purchaser prompt written notice of any
event or condition known to either the Sellers or to any of the Stockholders
which, if it had existed on the date of execution of this Agreement, would have
constituted a breach of any of their representations and warranties under this
Agreement.
12. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser
represents and warrants as follows:
(a) Purchaser has been duly organized and is validly
existing and in good standing under the laws of the Commonwealth of
Pennsylvania. Purchaser is qualified to do business and is in good standing
under the laws of the State of Texas, where it has its headquarters.
Purchaser's wholly owned subsidiary Advance Processing Systems, Inc. is
qualified to do business and is in good standing under the laws of the State of
Illinois;
(b) The execution, delivery and performance of this
Agreement have been duly authorized by the Board of Directors of Purchaser, and
Purchaser has the complete and unrestricted power and authority to, and has
taken all corporate action necessary to enter into, execute and deliver this
Agreement and to perform all of its obligations hereunder and to consummate all
transactions contemplated herein; and
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(c) This Agreement and the other agreements and
transactions contemplated herein to which Purchaser is or will be a party will
each, upon execution and delivery, be a legal, valid and binding obligation of
Purchaser enforceable in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally. This Agreement does not conflict with any other
agreement affecting Purchaser.
13. COVENANTS OF PURCHASER. Purchaser covenants that, between the
date of this Agreement and the Closing:
(a) Purchaser will offer to hire the employees of the
Sellers listed on Schedule 6, subject to Purchaser's ordinary pre-employment
and post-employment standards and conditions, at rates of pay and with benefits
consistent with those of similarly-situated employees of Purchaser. Purchaser
shall have no obligation to offer employment to any specific individual listed
in Schedule 6 who does not meet Purchaser's ordinary standards and conditions,
or to offer any individual on Schedule 6 pay or benefits comparable to those
identified in such Schedule. Purchaser assumes no liability for any wages or
other benefits (including but not limited to bonuses, vacations, sick leave,
retirement benefits, and medical benefits) accrued by any person listed in
Schedule 6 during such person's employment by the Sellers. Purchaser shall
recognize the original date of hire of employees shown on Schedule 6 and
employed after Closing by Purchaser for purpose of service related benefits
by Purchaser;
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(b) Purchaser shall use reasonable efforts to assist the
Sellers in obtaining necessary consents and approvals to the assignment of the
Lease and the Assumed Contracts and any other rights which are to be assumed by
Purchaser in accordance with this Agreement;
(c) Purchaser shall make applications to such
governmental authorities and agencies as Purchaser deems appropriate to ensure
that licenses, permits, and certificates held by the Sellers are transferred to
Purchaser as of the Closing, and at the request of the Sellers shall join and
cooperate in any such application which the Sellers may make; and
(d) Purchaser shall do all reasonable things and cause
all reasonable things to be done to ensure that the warranties and
representations of Purchaser contained in this Agreement remain true and
correct throughout the period until Closing, as if such representations and
warranties were continuously made throughout such period.
14. INDEMNITY BY THE SELLERS AND THE STOCKHOLDERS. Without
limiting any of their other obligations under this Agreement, the Sellers and
the Stockholders, individually agree to indemnify and hold harmless Purchaser
and its affiliates, Officers, directors, Stockholders and employees against and
from any loss, liability, damages, cost or expense incurred by them (including,
but not limited to, reasonable attorneys' and accounting fees and expenses)
based upon, arising out of, or relating to: (i) any materially inaccurate,
untruthful or erroneous representation or warranty of the Sellers or the
Stockholders set forth in this Agreement or any certificate or document
delivered pursuant to this Agreement; (ii) any material failure
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to perform with respect to any of the covenants, conditions or agreements of
the Sellers or the Stockholders set forth in this Agreement, or any transaction
contemplated in this Agreement, except that each Stockholder shall be liable to
Purchaser only for Sellers' or such Stockholders' individual conduct and
compliance with the non-compete provisions of this Agreement subsequent to the
Closing; or (iii) the ownership or operation of the Office through the Closing
Date.
15. INDEMNITY BY PURCHASER. Purchaser agrees to indemnify and
hold harmless the Sellers and the Stockholders against and from any loss,
liability, damages, cost or expense incurred by them (including but not limited
to reasonable legal, attorneys' and accounting fees and expenses) based upon,
arising out of, or relating to: (i) any breach of any representation or
warranty of Purchaser set forth in this Agreement or any certificate or
document delivered pursuant to this Agreement; (ii) the breach of any covenant
or agreement of Purchaser set forth in this Agreement; or (iii) the ownership
or operation of the Office after the Closing Date.
16. TERMINATION OF AGREEMENTS. The Sellers and the
Purchaser agree, that upon completion of the Closing, the Franchise Agreements
and any other agreements relating to the Franchise will terminate without
separate notice to any party as of the Closing Date, subject to the
post-termination obligations of the Sellers and Purchaser under the Franchise
Agreement and any other agreements, including but not limited to SIP. If the
parties fail to Close for any reason, the Franchise Agreement, SIP Agreement,
and any other agreements thereto, shall remain in full force and effect in
accordance with their terms.
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17. LOSS OR DESTRUCTION. Sellers shall continue to own and
operate the Offices until the Closing Date. Sellers shall assume all risk of
loss, destruction, or damage due to fire or other casualty until such date.
Purchaser shall have the right to cancel this Agreement if the Offices are
interrupted prior to said date by loss, destruction, or damage due to fire or
other casualty. If Purchaser does not exercise its right to cancel, as stated
herein, Purchaser shall take the Assets in the existing condition, together
with any insurance proceeds payable by virtue of such loss or damage.
18. CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE. The
obligation of Purchaser to consummate the transactions herein contemplated is,
at Purchaser's option, subject to the following express conditions precedent:
(a) The Assets shall be free and clear of all mortgages,
liens, security interests, pledges, charges, obligations and other
encumbrances;
(b) The representations and warranties of the Sellers and
the Stockholders contained in this Agreement shall be true in all material
respects at and as of Closing, as though such representations and warranties
had been made at and as of the Closing;
(c) The Sellers and the Stockholders shall have delivered
all of the items to be delivered by them to Purchaser at Closing pursuant to
Subsection 8 above, and shall not be in default under any other provision of
this Agreement at or prior to Closing;
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(d) The Assets shall not have been damaged as the result
of any act of God, fire, flood, war, labor disturbance or similar calamity
(unless Purchaser has waived the event), and there shall have been no material
adverse changes in the Assets, the Office, or the financial condition of the
Sellers since the execution of this Agreement;
(e) Purchaser has obtained approval of its Senior Lenders
for this transaction; and
(f) Sellers shall have delivered to Purchaser executed
UCC-3 statements for any liens on Sellers' Assets.
(g) (i) Sellers and Brett S. Hardt ("Hardt") hereby
each acknowledges, covenants, agrees and authorizes, that if Hardt breaches or
causes Sellers to breach Subsection 20(d) of this Agreement, Purchaser shall
have the right to withhold payment under the Rolling Meadows Note, the
Kalamazoo Note, the Des Plaines Note and all other amounts otherwise payable by
Purchaser to Sellers and the Stockholders, whether or not evidenced by a note
(collectively, the "Note Amounts"); and upon determination of the amount of any
damages sustained by Purchaser because of such breach of Subsection 20(d),
Purchaser shall have the right to offset and retain such damages against an
aggregate amount, which shall equal fifty percent (50%) of the aggregate amount
of all outstanding principal due and owing under and pursuant to the Note
Amounts.
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(ii) Sellers and Jeff Albrecht ("Albrecht") hereby each
acknowledges, covenants, agrees and authorizes, that if Albrecht breaches or
causes Sellers to breach Subsection 20(d) of this Agreement, Purchaser shall
have the right to withhold payment under the Rolling Meadows Note, the
Kalamazoo Note, the Des Plaines Note and all other amounts otherwise payable by
Purchaser to Sellers and the Stockholders, whether or not evidenced by a note
(collectively, the "Note Amounts"); and upon determination of the amount of
any damages sustained by Purchaser because of such breach of Subsection 20(d),
Purchaser shall have the right to offset and retain such damages against an
aggregate amount, which shall equal fifty percent (50%) of the aggregate amount
of all outstanding principal due and owing under and pursuant to the Note
Amounts.
(iii) Sellers and Stockholders each hereby further
acknowledge, covenant and agree that Purchaser shall retain the above-stated
rights of offset and that Purchaser shall not be in breach of the terms of this
Agreement until resolution of the breach of Subsection 20(d) occurs, whether by
agreement, compromise, settlement or final unappealable judgment.
(iv) The withholding of Note payments to either or both
Stockholders and the establishment of actual damages shall be in addition to
all other rights of Purchaser whether at law or in equity.
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19. CONDITIONS PRECEDENT TO THE SELLERS' OBLIGATION TO CLOSE. The
obligation of the Sellers to consummate the transactions contemplated herein at
Closing is, at the option of the Sellers, subject to the following express
conditions precedent:
(a) The representations and warranties of Purchaser
contained in this Agreement were true when made and shall be true in all
material respects at and as of Closing, as though such representations and
warranties had been made at and as of Closing; and
(b) Purchaser shall have delivered all of the items to be
delivered by it to the Sellers and the Stockholders at Closing pursuant to
Subsection 9 above, and shall not be in default under any other provisions of
this Agreement at or prior to Closing.
20. ADDITIONAL POST-CLOSING RESPONSIBILITIES. The parties shall
comply with the following obligations after the Closing:
(a) At Purchaser's request, without further
consideration, the Sellers and the Stockholders will execute and deliver after
Closing such further instruments of conveyance and transfer and take such other
action as Purchaser may reasonably require for the transfer of the Assets;
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<PAGE> 31
(b) At the request of Sellers, without further
consideration, Purchaser will execute and deliver after Closing such further
evidence as the Sellers may reasonably require of Purchaser's assumption of the
Lease and the Assumed Contracts;
(c) For ninety (90) days after the Closing Date at
Purchaser's request, the Sellers and the Stockholders shall assist Purchaser in
every reasonable manner in billing and collection efforts and in maintaining
the business relationships presently enjoyed by the Sellers and the
Stockholders with respect to the Office;
(d) Except for assisting Professional Staffing Services
initially in the implementation of Spectrum Software, the Sellers and the
Stockholders agree that for a period of three (3) years after the Closing
Date, they will not, directly or indirectly:
(i) own, operate, manage, be employed by, engage
in, provide assistance to, or have a financial interest in any temporary
employment services business, permanent placement business, or similar business
within the county(s) of Cook, DuPage and McHenry , in the State of
Illinois, and Kalamazoo, in the State of Michigan, so long as Purchaser, or a
person or entity deriving title from Purchaser to operate the Office, continues
to operate the Office. For purposes of this provision "temporary employment
services business" includes, but is not limited to, "employee leasing,"
"temp-to-hire," and "contract temporary" services;
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<PAGE> 32
(ii) solicit employment services business from any
client with whom the Office did business, if such client placed an order with
Sellers within the three (3) year period prior to the Closing Date; or
(iii) for a period of three (3) years employ or
seek to employ any employee of the Office or Purchaser or in any other manner
attempt, directly or indirectly, to influence, induce or encourage any employee
to leave the employment of the Office or Purchaser.
(e) Within fourteen (14) days subsequent to Closing,
Sellers shall provide to Purchaser an affidavit stating that all state and
local taxes due through the Closing Date have been paid. Sellers shall timely
file all federal, state and local tax returns relating to the period through
the Closing Date which become due after the Closing Date; shall timely pay all
taxes shown by such returns to be due and payable, together with any interest
or penalties which may be assessed by taxing authorities on any taxes which
were not timely paid; and shall deliver to Purchaser copies of all tax
clearance letters and closing notices received from government authorities
which relate to the Office; and
(f) Provide Sellers with the quarterly compliance report
provided Purchaser's senior lenders in accordance with Purchaser's loan
agreement, contemporaneous with submission to the senior lenders.
21. NOTICES. All notices pursuant to this Agreement shall be sent
in writing to addresses set forth below, unless changed by written notice in
accordance with this Section 21. Any notice sent by telecopy shall be
confirmed by mail.
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To Sellers and/or the Stockholders: BRETT HARDT
-----------------------------
21839 WEST RIVERIA COURT
-----------------------------
IVANHOE, ILLINOIS 60060
-----------------------------
JEFF ALBRECHT
-----------------------------
412 HILL COURT
-----------------------------
WAUCONDA, ILLINOIS 60084
-----------------------------
To Purchaser: SNELLING AND SNELLING, INC.
-----------------------------
12801 N. CENTRAL EXPRESSWAY
-----------------------------
SUITE 700
-----------------------------
DALLAS, TEXAS 75243
-----------------------------
ATTN: RICHARD H. SPRAGINS
-----------------------------
Telecopy No.: (214)239-6879
22. TERMINATION. (a) The Sellers or Purchaser may terminate
this Agreement by written notice to the other in the event the transactions
contemplated herein have not closed by November 15, 1996 ; and
(b) This Agreement may also be terminated at any time
prior to the Closing date:
(i) By mutual consent of Purchaser and Sellers;
(ii) By the Purchaser, if any of the conditions of
its obligations hereunder shall not have been satisfied at or prior to the
Closing on the Closing Date and shall not have been waived by it; and
(iii) By the Sellers, if any of the conditions of
its obligations hereunder shall not have been satisfied at or prior to the
Closing on the Closing Date, or if the senior lender approval by this
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<PAGE> 34
Agreement shall not have been obtained by Purchaser and the requirements shall
not have been waived by it.
(c) Such notice of termination shall be effective as to
all parties to this Agreement, whether or not they receive notice individually.
If this Agreement is terminated by the Sellers or by Purchaser for the reason
stated above without consummation of the transactions contemplated herein, such
termination shall be without liability or further obligation by any party to
any other party to this Agreement.
23. GENERAL PROVISIONS. (a) Each party shall bear its
own legal and other costs and expenses in connection with the negotiation,
preparation and execution of this Agreement, and the performance of the
transactions contemplated hereby;
(b) This Agreement and the documents referred to herein
constitute the entire agreement among the parties with respect to the sale and
purchase of the Assets and supersede all previous written or oral negotiations,
commitments, and writing concerning the same subject matter;
(c) This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument;
(d) This Agreement may be amended only in writing and
executed by all of the parties;
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<PAGE> 35
(e) This Agreement will inure to the benefit of, and
bind, the respective heirs, personal representatives, successors and permitted
assigns of the parties;
(f) The parties represent that no person is entitled to
any brokerage commission, finder's fee, or any other like payment in connection
with any transaction contemplated by this Agreement, by reason of the action of
any party to this Agreement; and
(g) This Agreement shall be governed by the laws of the
State of Texas.
24. MEDIATION AND ARBITRATION. THE PARTIES AGREE THAT ANY
AND ALL DISPUTES, CLAIMS OR CONTROVERSIES ARISING OUT OF OR RELATING TO THIS
AGREEMENT SHALL BE SUBMITTED TO J.A.M.S/ENDISPUTE, OR ITS SUCCESSOR, FOR
MEDIATION, AND IF THE MATTER IS NOT RESOLVED THROUGH MEDIATION, THEN IT SHALL
BE SUBMITTED TO J.A.M.S./ENDISPUTE, OR ITS SUCCESSOR, FOR FINAL AND BINDING
ARBITRATION. EITHER PARTY MAY COMMENCE MEDIATION BY PROVIDING TO
J.A.M.S/ENDISPUTE, AND THE OTHER PARTY A WRITTEN REQUEST FOR MEDIATION, SETTING
FORTH THE SUBJECT OF THE DISPUTE AND THE RELIEF REQUESTED. THE PARTIES WILL
COOPERATE WITH J.A.M.S/ENDISPUTE AND WITH ONE ANOTHER IN SELECTING A MEDIATOR
FROM J.A.M.S/ENDISPUTE'S PANEL OF NEUTRALS, AND IN SCHEDULING THE MEDIATION
PROCEEDINGS. THE PARTIES COVENANT THAT THEY WILL PARTICIPATE IN THE MEDIATION
IN GOOD FAITH, AND THAT THEY WILL SHARE EQUALLY IN ITS COSTS. ALL OFFERS,
PROMISES, CONDUCT AND STATEMENTS, WHETHER ORAL OR WRITTEN, MADE IN THE COURSE
OF THE MEDIATION BY ANY OF THE PARTIES, THEIR AGENTS, EMPLOYEES, EXPERTS AND
ATTORNEYS, AND BY THE MEDIATOR OR ANY J.A.M.S/ENDISPUTE EMPLOYEES, ARE
CONFIDENTIAL, PRIVILEGED AND INADMISSIBLE FOR
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<PAGE> 36
ANY PURPOSE, INCLUDING IMPEACHMENT, IN ANY ARBITRATION OR OTHER PROCEEDING
INVOLVING THE PARTIES, PROVIDED THAT EVIDENCE THAT IS OTHERWISE ADMISSIBLE OR
DISCOVERABLE SHALL NOT BE RENDERED INADMISSIBLE OR NON-DISCOVERABLE AS A RESULT
OF ITS USE IN THE MEDIATION.
THE PARTIES AGREE THAT ANY AND ALL DISPUTES, CLAIMS OR CONTROVERSIES ARISING
OUT OF OR RELATING TO THIS AGREEMENT THAT ARE NOT RESOLVED BY THEIR MUTUAL
AGREEMENT OR MANDATORY OR REASONABLE MEDIATION SET FORTH ABOVE, SHALL BE
SUBMITTED TO FINAL AND BINDING ARBITRATION BEFORE J.A.M.S/ENDISPUTE, OR ITS
SUCCESSOR, PURSUANT TO THE UNITED STATES ARBITRATION ACT, 9 U.S.C. SEC. 1 ET
SEQ. EITHER PARTY MAY COMMENCE THE ARBITRATION PROCESS CALLED FOR IN THIS
AGREEMENT BY FILING A WRITTEN DEMAND FOR ARBITRATION WITH J.A.M.S/ENDISPUTE,
WITH A COPY TO THE OTHER PARTY. THE ARBITRATION WILL BE CONDUCTED IN
ACCORDANCE WITH THE PROVISION OF J.A.M.S/ENDISPUTE'S COMPREHENSIVE ARBITRATION
RULES AND PROCEDURES IN EFFECT AT THE TIME OF FILING OF THE DEMAND FOR
ARBITRATION. THE PARTIES WILL COOPERATE WITH J.A.M.S/ENDISPUTE AND WITH ONE
ANOTHER IN SELECTING AN ARBITRATOR FROM J.A.M.S/ENDISPUTE'S PANEL OF NEUTRALS,
AND IN SCHEDULING THE ARBITRATION PROCEEDINGS. THE PARTIES COVENANT THAT THEY
WILL PARTICIPATE IN THE ARBITRATION IN GOOD FAITH, AND THAT THEY WILL SHARE
EQUALLY IN ITS COSTS. THE PROVISIONS OF THIS PARAGRAPH MAY BE ENFORCED BY ANY
COURT OF COMPETENT JURISDICTION, AND THE PARTY SEEKING ENFORCEMENT SHALL BE
ENTITLED TO AN AWARD OF ALL COSTS, FEES AND EXPENSES, INCLUDING ATTORNEYS FEES,
TO BE PAID BY THE PARTY AGAINST WHOM ENFORCEMENT IS ORDERED.
25. CONFIDENTIALITY. Neither Purchaser nor Sellers, nor
any of their respective Stockholders, affiliates, Officers, employees, agents
or representatives shall: (a) make any press releases or any published
statement concerning the transactions contemplated herein without the prior
written consent of
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<PAGE> 37
all of the parties hereto, which consent shall not be withheld where such press
releases or statement is required by applicable law; or (b) disclose the terms
or existence of this Agreement to any person or entity, other than to their
respective attorneys and other representatives, and to those parties such as
bankers and lessors with whom they must communicate in order to consummate the
proposed transactions. Purchaser and Sellers shall be permitted to discuss the
transactions contemplated herein with their respective suppliers and vendors,
provided that they instruct such suppliers and vendors to keep all such
communications confidential.
26. BULK TRANSFER LAWS. The parties waive compliance with
the requirements of the bulk transfer or bulk sales law of any jurisdiction in
connection with the sale of the Assets to Purchaser under this Agreement.
Sellers shall indemnify and hold Purchaser harmless against any and all losses
incurred by Purchaser as a result of noncompliance with any such laws.
27. RELEASE BY SELLERS AND STOCKHOLDERS. The Sellers and
each Stockholder, for themselves and on behalf of their officers, directors,
employees, successors, representatives, and agents, do hereby irrevocably and
unconditionally release, acquit, and forever discharge (the "Release")
Purchaser, its officers, directors, stockholders, employees, successors,
representatives, and agents from any and all claims, debts, damages, demands,
liabilities, suits in equity, complaints, grievances, obligations, promises,
agreements, rights, controversies, consents, losses, damages, attorneys' fees
and expenses, punitive damages and other compensation, suits, appeals, actions,
and causes of actions, of whatever kind of character, whether heretofore or
hereafter accruing, whether known or unknown, suspected or unsuspected,
specified or
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<PAGE> 38
unspecified, fixed or contingent, liquidated or unliquidated, for or because of
any matter or thing done, omitted, or suffered to be done by, Purchaser, its
officers, directors, stockholders, employees, successors, representatives, and
agents, for any incidents, including those past and present, which may have
existed prior to, or contemporaneously with, the execution of this Agreement,
or subsequent to the execution of this Agreement if arising out of conduct
occurring before the execution of this Agreement. The Sellers and each
Stockholder hereby represent that nothing which is released hereunder has been
transferred, assigned, or given away prior to the date hereof to any person,
firm, or entity.
(a) It is the intention of the Sellers and each Stockholder in
executing this Agreement that the Release shall be effective as a bar to each
and every claim, demand, and cause of action hereinabove specified, and the
Sellers and each Stockholder hereby knowingly and voluntarily waive any and all
rights and benefits. The Sellers and each Stockholder expressly consent that,
this release shall be given full force and effect according to each and all of
its express terms and provisions, including those relating to unknown and
unspecified claims, demands, and causes of action. The Sellers and each
Stockholder acknowledge and agree that this waiver is an essential and material
term of the Release of this Agreement and without the waiver of transaction
contemplated by this Agreement would not be consummated.
28. RELEASE BY PURCHASER. The Purchaser, for itself and on
behalf of their officers, directors, employees, successors, representatives,
and agents, do hereby irrevocably and unconditionally release, acquit, and
forever discharge (the "Release") the Sellers and Stockholders, its officers,
directors, employees, successors, representatives, and agents from any and all
claims, debts, damages, demands, liabilities, suits in
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equity, complaints, grievances, obligations, promises, agreements, rights,
controversies, consents, losses, damages, attorneys' fees and expenses,
punitive damages and other compensation, suits, appeals, actions, and causes of
actions, of whatever kind of character, whether heretofore or hereafter
accruing, whether known or unknown, suspected or unsuspected, specified or
unspecified, fixed or contingent, liquidated or unliquidated, for or because of
any matter or thing done, omitted, or suffered to be done by, the Sellers and
Stockholders, its officers, directors, employees, successors, representatives,
and agents, for any incidents, including those past and present, which may have
existed prior to, or contemporaneously with, the execution of this Agreement,
or subsequent to the execution of this Agreement if arising out of conduct
occurring before the execution of this Agreement. The Purchaser hereby
represents that nothing which is released hereunder has been transferred,
assigned, or given away prior to the date hereof to any person, firm, or
entity.
(a) It is the intention of the Purchaser in executing this
Agreement that the Release shall be effective as a bar to each and every claim,
demand, and cause of action hereinabove specified, and the Purchaser hereby
knowingly and voluntarily waives any and all rights and benefits. The
Purchaser expressly consents that, this release shall be given full force and
effect according to each and all of its express terms and provisions, including
those relating to unknown and unspecified claims, demands, and causes of
action. The Purchaser acknowledges and agrees that this waiver is an essential
and material term of the Release of this Agreement and without the waiver of
transaction contemplated by this Agreement would not be consummated.
29. SURVIVAL OF REPRESENTATIONS. All representations,
warranties and agreements made by the parties hereto, shall survive Closing.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed under seal of the date first written above.
PAR THREE HELP SERVICES, INC Stockholders:
By: /s/ BRETT S. HARDT By: /s/ BRETT S. HARDT
------------------------------ -------------------------
Brett S. Hardt Brett S. Hardt
President
By: /s/ BRETT S. HARDT
-------------------------
Jeff Albrecht
SNELLING AND SNELLING, INC.
By: /s/ RICHARD H. SPRAGINS
------------------------------
Richard H. Spragins
Senior Vice President
<PAGE> 1
EXHIBIT 10.24
ASSET PURCHASE AGREEMENT
BETWEEN
PAR FOUR SERVICES, INC.
(THE "SELLERS")
AND BRETT S. HARDT, JEFF ALBRECHT, AND SCOTT WELLS
(THE "STOCKHOLDERS")
AND
SNELLING AND SNELLING, INC. ("PURCHASER")
1
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2. Sale and Transfer of Assets . . . . . . . . . . . . . . . . . . . . . . 7
3. Assumption of Liabilities . . . . . . . . . . . . . . . . . . . . . . . 7
4. Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5. Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . . . 8
6. Allocation of Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 9
7. Collection of Accounts Receivable. . . . . . . . . . . . . . . . . . . . 9
8. Closing Deliveries by the Sellers and Stockholders . . . . . . . . . . 10
9. Closing Deliveries by Purchaser . . . . . . . . . . . . . . . . . . . . 13
10. Representations and Warranties of the Sellers
and the Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . 14
11. Covenants of the Sellers and the Stockholders . . . . . . . . . . . . . 19
12. Representations and Warranties of Purchaser . . . . . . . . . . . . . . 22
13. Covenants of Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . 23
14. Indemnity by the Sellers and the Stockholders . . . . . . . . . . . . . 24
15. Indemnity by Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . 25
16. Termination of Agreements. . . . . . . . . . . . . . . . . . . . . . . . 25
17. Loss or Destruction . . . . . . . . . . . . . . . . . . . . . . . . . . 26
18. Conditions Precedent to Purchaser's
Obligation to Close . . . . . . . . . . . . . . . . . . . . . . . . . . 26
19. Conditions Precedent to the Sellers'
Obligation to Close . . . . . . . . . . . . . . . . . . . . . . . . . . 27
20. Additional Post-Closing Responsibilities . . . . . . . . . . . . . . . . 28
21. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
22. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
23. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
24. Mediation and Arbitration . . . . . . . . . . . . . . . . . . . . . . . 33
25. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
26. Bulk Transfer Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
27. Release by Sellers and Stockholders . . . . . . . . . . . . . . . . . . 36
28. Release by Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . 37
29. Survival of Representations . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
2
<PAGE> 3
SCHEDULES
Schedule 1 - Tangible Assets
Schedule 2 - Assumed Contracts
Schedule 3 - List of Receivables to be Delivered at Closing
Schedule 4 - Allocation of Purchase Price
Schedule 5 - Encumbrances
Schedule 6 - Employees
3
<PAGE> 4
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is entered into
effective as of this 16th day of October, 1996, by and among Par Four
Services, Inc., an Illinois corporation (the "Sellers"), and BRETT S. HARDT,
JEFF ALBRECHT, AND SCOTT WELLS (the "Stockholders"), on one hand, and SNELLING
AND SNELLING, INC. ("Purchaser"), a Pennsylvania corporation, on the other
hand.
RECITALS
WHEREAS Sellers are operating one (1) "Snelling Personnel Services"
office (the "Office") pursuant to a certain franchise agreement with Purchaser
at the following location:
<TABLE>
<CAPTION>
Office No. Location of Office. Date of Franchise Agreement.
---------- ------------------- ----------------------------
<S> <C> <C>
F0279 6230 Northwest Highway August 21, 1995
Crystal Lake, Illinois 60014
</TABLE>
WHEREAS, Stockholders are the owners of one hundred percent (100%) of
the issued and outstanding common stock of Sellers;
WHEREAS, Sellers desire to sell, transfer, convey and assign to
Purchaser, and Purchaser desires to purchase, under the terms and conditions
set forth herein, all of the assets of Sellers associated with the Office,
including the trademarks, service marks, and trade names, if any, and the good
will associated with the Office;
4
<PAGE> 5
WHEREAS, Sellers' franchise agreement with Purchaser is referred to in
this Agreement as the "Franchise Agreement."
WHEREAS, Purchaser also desires to obtain assignments of certain
contracts and agreements relating to the operation of Sellers' Office and
agrees to assume certain of Sellers' obligations and liabilities.
NOW, THEREFORE, FOR AND IN CONSIDERATION of the mutual promises
contained herein, the parties agree as follows:
1. DEFINITIONS. The following words shall have the following
meanings when used in this Agreement:
(a) "Assets" shall mean all of the rights, title and
interest of Sellers in the assets, properties, rights, claims and contracts of
every kind, character and description, whether real or personal, tangible or
intangible, which are used or usable in, or relate to, the operation of the
Office, without regard to whether reflected on the Sellers' financial
statements or books. Specifically excluded from the Assets being sold
hereunder are any accounts receivable of the Sellers related to work performed
or services provided through the close of business of the day immediately prior
to the Closing Date. Assets being acquired by Purchaser are:
(i) the tangible assets set forth and identified
as being acquired by Purchaser in Schedule 1 to this Agreement;
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<PAGE> 6
(ii) all contracts and relationships of Sellers
with clients and with temporary employees (as those terms are defined in the
Franchise Agreement);
(iii) Sellers' rights in and to the telephone
numbers and telephone directory advertising for the Office, and all other
intangible property, trade secrets, rights under Assumed Contracts (as defined
in Section 3), permits, and licenses associated with the Office;
(iv) any Internet names registered by Sellers;
(v) all of Sellers' trade names, trademarks, or
service marks used, or available for use, in Sellers' business;
(vi) the rights of the Sellers under the
assumption of the Lease of real property relating to the Office (the "Lease");
(vii) all inventory and supplies on hand as of the
Closing Date;
(viii) all business papers and records pertaining to
the Office, including but not limited to personnel records (including payroll
records) concerning each employee of the Sellers who will become employed by
the Purchaser after the Closing Date, client records, vendor lists, and
operations manuals; and
(ix) all Placement Receipts, if any, (as that term
is defined in the Franchise Agreement) except for those for which the employee
has both been offered permanent employment by a client and accepted such offer
of employment on or before the Closing Date.
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<PAGE> 7
(b) "Closing" shall mean the events which take place for
the purpose of consummating the transactions contemplated by this Agreement,
commencing at 9:00 a.m. on Monday, November 4, 1996, at Chicago, Illinois ,
or at another acceptable time and location to which the parties agree; and
(c) "Closing Date" shall mean 12:01 a.m. on Monday,
November 4, 1996.
2. SALE AND TRANSFER OF CERTAIN ASSETS. Upon the terms and
subject to the conditions set forth in this Agreement, the Sellers agree to
sell, transfer, assign, grant, convey and deliver the tangible Assets listed on
Schedule 1 and all other Assets listed in Subsection 1(a) to Purchaser on the
Closing Date, free and clear of all mortgages, liens, security interests,
pledges, charges and other encumbrances. Notwithstanding any language that may
be stated in this Agreement, Sellers' accounts receivable as that term is
described herein, are not an Asset being sold, transferred, assigned, granted,
or conveyed to Purchaser.
3. ASSUMPTION OF LIABILITIES. Purchaser has not assumed, and
shall not assume, any liability or obligation of any nature, known or unknown,
existing or contingent, of the Sellers, except that, at Closing: (i) Purchaser
shall assume the Lease unless Purchaser notifies Sellers in writing within ten
(10) days of the Closing that Purchaser will not assume the Lease; and (ii) the
other written contracts and obligations specifically identified in Schedule 2
to this Agreement (the "Assumed Contracts"). Sellers shall assume and make
payments for the obligations for unused vacation and unused sick leave, if
any, accrued through the Closing Date by each employee of the Sellers. The
Sellers acknowledge that Purchaser does not assume any obligation in connection
with any actual or alleged breach or default of Lease or Assumed Contracts
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occurring at any time through the Closing Date. Except for the items specified
in clauses (i) and (ii) above, all obligations, liens, encumbrances, and
liabilities of the Sellers shall continue to be the sole responsibility of the
Sellers and Sellers shall hold Purchaser harmless.
4. PURCHASE PRICE. In reliance upon the representations and
warranties for the assets named herein, Purchaser shall pay the Sellers Five
Hundred Thousand Dollars ($500,000) (the "Purchase Price"). The Purchase Price
shall be paid as follows:
(a) At Closing, Purchaser shall pay the Sellers Five
Hundred Thousand Dollars ($500,000) in cash by certified check.
5. ALLOCATION OF PURCHASE PRICE. In accordance with Section 1060
of the Internal Revenue Code of 1986, as amended, the Purchase Price shall be
allocated in the manner set forth in Schedule 4 to this Agreement. The Sellers,
the Stockholders, and Purchaser each covenant and warrant to each other that:
(i) in no tax return filed by the parties or any of their respective successors
or assigns shall the allocation of the Purchase Price be treated or reported
inconsistently with or differently from the allocation of the Purchase Price
set forth in Schedule 4, unless such change in allocation is the result of a
determination by a governing authority for that year or a preceding year; and
(ii) in no tax audit, tax examination, tax or compliance review or tax
litigation will the parties or any of their respective successors or assigns
claim or assert that the allocation of the Purchase Price is or should be
inconsistent with or different from that set forth in Schedule 4, unless as a
result of a determination made by a governing authority in a preceding year.
The parties agree
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to file all appropriate Internal Revenue Service Forms with their respective
Federal income tax returns for their respective tax year in which the Closing
occurs.
6. ALLOCATION OF EXPENSES. All real estate taxes, personal
property taxes, rents, telephone charges, utilities, and other costs and
expenses of owning or operating the Assets which relate to periods both before
and after the Closing Date (the "Prorated Costs") shall be prorated on a per
diem basis as of the Closing Date, with the Sellers responsible for the portion
of all such items which relates to the period through the Closing Date, and
Purchaser responsible for the portion of all such items which relates to the
period after the Closing Date. Prorated Costs shall be settled between
Purchaser and Sellers either at Closing or as soon as practicable thereafter;
and
(a) Any sales tax, use tax, excise tax, transfer tax,
recording fee or other tax or fee imposed on the transfer of the Assets from
Sellers to Purchaser shall be paid by Sellers.
7. COLLECTION OF ACCOUNTS RECEIVABLE. With respect to the
accounts receivable for the placement of employees, Sellers shall be entitled
to all monies owed Sellers, as evidenced by the accounts receivable list at
time of Closing covering all work completed through Friday, October 25, 1996,
to be followed by a subsequent report covering accounts receivable up to
Closing, which shall be due Purchaser by Thursday, November 7, 1996.
Purchaser shall be entitled to all monies received from the generation of
accounts receivable subsequent to November 3, 1996; and
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(a) As described above, Sellers shall provide at Closing
or immediately thereafter, a list of placement and temporary accounts
receivable due Sellers on the Closing Date. For ninety (90) days subsequent to
the Closing, Purchaser shall be responsible for the collection of such accounts
receivable and shall provide Sellers a weekly report accompanied by all monies
due Sellers in accordance with Sellers' Franchise Agreements with Purchaser
except that Sellers shall be responsible for all collection efforts with
inactive clients' accounts receivable which are over sixty (60) days old.
Inactive client shall be defined as a client who has not utilized the services
of Sellers within six (6) months of the Closing Date. Purchaser shall return
to Sellers at the end of the ninety (90) day period all uncollected accounts
receivable for further collection efforts by Sellers. Purchaser shall incur no
liability to Sellers for the uncollectibility of said accounts receivable.
Thereafter, Sellers shall submit to Purchaser monthly reports of all collection
activity accompanied by all monies due Purchaser in accordance with the
provisions of the Franchise Agreement. Sellers shall receive credit for all
collections subsequent to Closing, whether by Sellers or Purchaser, under the
Sales Incentive Program Agreement ("SIP") and shall receive payment in
accordance with SIP; and
(b) Sellers shall have access to all records to assist
Sellers in the collection of certain accounts receivable or for litigation or
government filing purposes.
8. CLOSING DELIVERIES BY THE SELLERS AND THE STOCKHOLDERS. The
Sellers and the Stockholders agree to execute and deliver at Closing, or cause
to be executed and delivered at Closing, the following:
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(a) Such instruments of transfer, assignment and conveyance
as shall be necessary or desirable in the judgment of Purchaser to vest in
Purchaser good and marketable title to the Assets free and clear of all
mortgages, liens, security interests, pledges, charges and other encumbrances.
Such instruments of transfer shall include:
(i) A Bill of Sale from the Sellers, in the form
furnished to the Sellers by Purchaser;
(ii) The written consent of the lessor to the
assignment and assumption of the Lease provided, however, if Sellers cannot
obtain any such assignment and assumption, Sellers shall assign any and all
rights they have in the Lease. Sellers shall indemnify and hold harmless
Purchaser from any and all damages and costs incurred by Purchaser if the
lessor rejects the Sellers' assignment of its rights to Purchaser and either
reforms the Lease or terminates the Lease, so long as lessor's action is based
upon the assignment and not a breach by Purchaser of any of the terms of the
Lease Purchaser accepted from Sellers. Sellers shall use their best efforts to
obtain all such assignments and assumptions;
(iii) Cooperation of parties to receive written
consents of third parties under the Assumed Contracts to the assignment and
assumption of the Assumed Contracts as soon as possible;
(iv) Form UCC-3 termination statements, signed by
the creditor, to cancel any financing statements disclosed in Schedule 5 to
this Agreement (other than financing statements filed in connection with
Assumed Contracts);
(v) Unanimous written consents, signed by all
Stockholders of the Sellers, in a form consistent with the Sellers' bylaws and
state laws, approving the transactions contemplated hereunder, and any other
duly executed corporate and other documents which Purchaser may have reasonably
requested
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hereunder, satisfactory in form and substance, in the reasonable judgment of
Purchaser, and where appropriate certified by the proper corporate or
governmental authorities; and
(vi) The written consents of any other persons
whose approval or consent to the execution, delivery, and performance of this
Agreement by the Sellers is legally or contractually required.
(b) The originals of the Lease, and (if written) the
Assumed Contracts;
(c) A certificate signed by the president of Sellers to
the effect that all representations and warranties of Sellers contained in this
Agreement are true at and as of Closing, that Sellers have performed all
agreements on its part required to be performed hereunder, and that Sellers are
not in default under any of the provisions of this Agreement;
(d) Copies of insurance policies conforming to Subsection
10(m);
(e) A letter to the telephone company servicing Sellers
requesting transfer to Purchaser of the telephone number (including numbers for
facsimile machines and modems) and listings applicable to the Office;
(f) List of accounts receivable as of the Closing Date as
provided in Section 7;
(g) Any names or addresses Sellers have registered for
use on the Internet; and
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(h) No later than five (5) days prior to Closing, Sellers
shall submit to Purchaser such other instruments, documents or affidavits, in
form and substance reasonably acceptable to Purchaser, as may be necessary to
effect the Closing
9. CLOSING DELIVERIES BY PURCHASER. In addition to delivery of
the amount required under Subsection 4(a) above, Purchaser agrees to execute
and deliver at the Closing, or cause to be executed and delivered at Closing:
(a) Immediately available funds in the amount provided in
Subsection 4(a);
(b) Such instruments as shall be necessary or desirable
in the judgment of the Sellers to effect the assumption by Purchaser of the
Lease and the Assumed Contracts;
(c) Certified copy of resolutions duly adopted by the
Board of Directors of Purchaser authorizing the execution and delivery of this
Agreement and consummation of transactions described herein, which shall be in
full force and effect at the time of delivery;
(d) A certificate signed by the president of Purchaser to
the effect that all representations and warranties of Purchaser contained in
this Agreement are true at and as of Closing, that Purchaser has performed all
agreements on its part required to be performed hereunder, and that Purchaser
is not in default under any of the provisions of this Agreement;
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(e) Written consent from the bank, approving the
transactions herein;
(f) Certified copy of resolutions authorizing Richard H.
Spragins to act or sign documents on behalf of Purchaser as an authorized
agent; and
(g) With respect to Lease deposits, Sellers shall not
seek nor accept the return of the Lease deposit, or any part thereof, and
Purchaser shall pay to Sellers at Closing, among other payments, an amount
sufficient to cover Sellers' Lease deposit with Lessor. In the event lessor
terminated the Lease agreement and the termination is based upon the change of
lessees, Sellers shall request return of Lease deposit from lessor and return
to Purchaser the amount received from lessor.
10. REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE
STOCKHOLDERS. The Sellers and the Stockholders, jointly and severally,
represent and warrant as follows:
(a) The Sellers have been duly organized and are validly
existing and in good standing under the laws of the State of Illinois;
(b) The Stockholders together own all of the issued and
outstanding stock of the Sellers. The execution, delivery, and performance of
this Agreement have been duly authorized by the Board of Directors of the
Sellers, and all necessary Stockholders action under the Sellers' bylaws and
Illinois law has
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been taken for approval of the execution and delivery of this Agreement by the
Sellers, their performance of the terms of this Agreement, and the consummation
of the transactions contemplated hereunder;
(c) The execution and delivery of this Agreement, the
Sellers' performance hereunder, and the consummation of the transactions herein
contemplated, do not, and to the best of the Stockholders' knowledge will not
immediately or with the passage of time, the giving of notice or otherwise,
result in the breach of, constitute a default or violation under, or accelerate
any obligation under any agreement or other instruments to which either the
Sellers or any of the Stockholders are a party, or may be bound, so as to give
or create any rights in third parties with respect to the Assets;
(d) The Sellers have good title and right to use of all
trade names, trademarks or service marks used or available for use in Sellers'
Office, and neither the Sellers nor the Stockholders have notice of any claim
concerning a violation of or infringement upon the rights of any third party
with respect to the use of any trade name, trademark, service mark, copyright
or patent;
(e) This Agreement and the other agreements and
transactions contemplated herein to which the Sellers are or will be a party
will each, upon execution and delivery, be a legal, valid, and binding
obligation of the Sellers, enforceable in accordance with its terms, except as
may be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally;
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(f) Except as disclosed in Schedule 5, the Sellers have
good and marketable title to the Assets free and clear of all mortgages, liens,
security interests, pledges, charges, obligations and other encumbrances;
(g) The Sellers have previously delivered to Purchaser
the Sellers' most recent federal income tax returns, balance sheets as of June
30, 1996, together with the Sellers' income statements for the fiscal year then
ended, and the interim balance sheets and income statements of the Sellers,
June 30, 1996, (collectively, the "Financial Statements"). The Financial
Statements reflect or provide for all material claims against, and all material
debts and liabilities relating to, the Office, fixed or contingent, as of the
dates of the Financial Statements. There has not been any change since the
date of the most recent Financial Statements which materially and adversely
affected the Office or the Assets or the financial condition or results of the
operation of the Sellers. The Financial Statements are true, correct and
complete and were prepared in good faith in accordance with a cash basis of
accounting which system is a comprehensive accounting method used by Sellers;
(h) The Sellers have filed all federal, state, and local
tax returns including income, sales, and payroll, which were required to be
filed prior to the date of this Agreement and have made payment of all taxes
shown by those returns to be due and payable;
(i) The Sellers have all requisite power and all known
necessary permits, certificates, contracts, approvals and other authorizations
required by federal, state, city, county or other municipal
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bodies to own, lease, and use the Assets to operate the Office in the manner in
which they are presently operated;
(j) In connection with the operation of the Office and
ownership and use of the Assets, there are not now and have not been any
material failures to comply with any applicable known local, state or federal
laws, regulations, ordinances or administrative or judicial orders, and no
allegations have been made of any such failure;
(k) Sellers are not subject to any order of any court or
governmental authority; any pending or, to the best of the Sellers' and the
Stockholders' knowledge, threatened action, suit, proceeding, inquiry or
investigation at law or in equity; or any proceeding before any court,
arbitrator, public board or body, in which an unfavorable decision, ruling or
finding would, in any way, prevent the carrying out of this Agreement or any of
the transactions contemplated hereunder, declare unlawful any such
transactions, cause such transactions to be rescinded, have a material adverse
effect on the Office or the financial condition of the Sellers;
(l) Except for the Lease and the Assumed Contracts, and
the encumbrances listed in Schedule 5, there are no agreements, Lease,
contracts, charges, encumbrances or restrictions which may restrict Purchaser's
use or right to use any of the Assets or which create obligations for which
Purchaser could be liable;
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(m) The Sellers have maintained liability insurance for
any claims which may have arisen or cause of action which may have accrued
during Sellers' ownership and/or operation of the Assets and the Office. Such
liability insurance is of the "occurrence" type, so that if the policies are
discontinued by the Sellers after the Closing Date, liability insurance
coverage will nevertheless continue (subject to the terms and conditions of
such policies) with respect to such claims and causes of action;
(n) Neither this Agreement nor any Exhibit, Schedule, or
attachment hereto, nor any certificate or other information or document
furnished by or on behalf of the Sellers or the Stockholders knowingly contains
any untrue statement of a material fact, or knowingly omits to state a material
fact necessary in order to make the statements contained herein or therein not
misleading;
(o) Schedule 6 to this Agreement is a list of all persons
currently employed by the Sellers. Schedule 6 accurately and completely shows
the listed employees' current rates of compensation. Sellers have no
employment agreements with any of its employees which Purchaser will be
required to assume and has no oral or written understandings with any of its
employees which relate to terms or conditions of such employee's employment
which Purchaser will be required to assume. Purchaser has agreed to employ
under employment at will agreements for Sellers' staff employees; and
(p) The Sellers have no pension sharing plans or employee
benefit plans (as that term is defined in the federal law commonly known as the
Employees' Retirement Income Security Act, as amended) for any of its
employees, which Purchaser will be required to assume.
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11. COVENANTS OF THE SELLERS AND THE STOCKHOLDERS. The Sellers
and the Stockholders covenant that, between the date of this Agreement and the
Closing, they will:
(a) Carry on the business of the Office in the ordinary
course;
(b) With Sellers' approval which will not be unreasonably
withheld and subject to any attorney client privilege, give Purchaser and its
attorneys, auditors and other representatives full access during normal
business hours to the Office and to the properties, books, contracts,
commitments and records pertaining to the Office;
(c) With Sellers' approval which will not be unreasonably
withheld and subject to any attorney client privilege, provide Purchaser with
access to such information concerning the affairs of the Office as Purchaser
may reasonably request, including authorizing the Sellers' auditors, attorneys
and other representatives to cooperate with Purchaser's auditors and attorneys
and other representatives and authorizing the Sellers' auditors to give
Purchaser's auditors full access to their files and working papers with respect
to the Office;
(d) Do all reasonable things and cause all reasonable
things to be done to ensure that the warranties and representations of the
Sellers and the Stockholders contained in this Agreement remain true and
correct throughout the period until Closing, as if such representations and
warranties were continuously made throughout such period;
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(e) Not enter into any new contracts, commitments or
transactions pertaining to the Office, except in the ordinary course of
business;
(f) Not sell, agree to sell, or otherwise dispose of any
of the Assets (other than supplies used or sold in the ordinary course of
business), without the prior written consent of Purchaser;
(g) Use best efforts to obtain the releases of all
mortgages, liens, security interests, pledges, charges, obligations, and other
encumbrances set forth in Schedule 5;
(h) Not create or assume any new pledge, lien, or
encumbrance with respect to the Assets;
(i) Maintain the Assets in as good repair, order, and
condition as they were in as of the date of this Agreement, reasonable wear and
use and damage by fire, acts of God, or other casualty excepted;
(j) Not incur any indebtedness, obligations, or liability
with respect to the Office or Assets or make any payment in respect thereof,
except in the ordinary course of business;
(k) Pay, satisfy, and discharge the current obligations
and liabilities of the Office in the ordinary course of business, including but
not limited to royalties accruing under the Franchise Agreements and any other
amounts payable to Purchaser and its affiliates;
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(l) File all federal, state, and local tax returns which
become due prior to the Closing, and pay all taxes shown by those returns to be
due and payable, together with any interest or penalties which may be assessed
by taxing authorities on any taxes which were not timely paid;
(m) Maintain or cause to be maintained in full force and
effect all of the fire and other insurance on property and all of the
liability and other casualty insurance (including any bonds on personnel) that
was in effect with respect to the Office as of the date of this Agreement;
(n) Use reasonable efforts to preserve intact the
Sellers' business organization and the goodwill of the Sellers' Clients and
suppliers;
(o) Conduct advertising and promotion for the Office
consistent with the amount and type of such advertising and promotion conducted
during the twelve months prior to the date of this Agreement;
(p) Maintain the books of account and records of the
Office in the usual manner;
(q) Promptly, at Purchaser's request, join and cooperate
in any application which Purchaser may make in order to ensure the timely
transfer of any licenses, permits, or certificates to Purchaser at Closing;
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(r) Promptly advise Purchaser in writing of any material
adverse change with respect to the Office, the Assets, or the financial
condition of the Sellers; and
(s) Deliver to Purchaser prompt written notice of any
event or condition known to either the Sellers or to any of the Stockholders
which, if it had existed on the date of execution of this Agreement, would have
constituted a breach of any of their representations and warranties under this
Agreement.
12. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser
represents and warrants as follows:
(a) Purchaser has been duly organized and is validly
existing and in good standing under the laws of the Commonwealth of
Pennsylvania. Purchaser is qualified to do business and is in good standing
under the laws of the State of Texas, where it has its headquarters.
Purchaser's wholly owned subsidiary Advance Processing Systems, Inc. is
qualified to do business and is in good standing under the laws of the State of
Illinois;
(b) The execution, delivery and performance of this
Agreement have been duly authorized by the Board of Directors of Purchaser, and
Purchaser has the complete and unrestricted power and authority to, and has
taken all corporate action necessary to enter into, execute and deliver this
Agreement and to perform all of its obligations hereunder and to consummate all
transactions contemplated herein; and
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(c) This Agreement and the other agreements and
transactions contemplated herein to which Purchaser is or will be a party will
each, upon execution and delivery, be a legal, valid and binding obligation of
Purchaser enforceable in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally. This Agreement does not conflict with any other
agreement affecting Purchaser.
13. COVENANTS OF PURCHASER. Purchaser covenants that, between the
date of this Agreement and the Closing:
(a) Purchaser will offer to hire the employees of the
Sellers listed on Schedule 6, subject to Purchaser's ordinary pre-employment
and post-employment standards and conditions, at rates of pay and with benefits
consistent with those of similarly-situated employees of Purchaser. Purchaser
shall have no obligation to offer employment to any specific individual listed
in Schedule 6 who does not meet Purchaser's ordinary standards and conditions,
or to offer any individual on Schedule 6 pay or benefits comparable to those
identified in such Schedule. Purchaser assumes no liability for any wages or
other benefits (including but not limited to bonuses, vacations, sick leave,
retirement benefits, and medical benefits) accrued by any person listed in
Schedule 6 during such person's employment by the Sellers. Purchaser shall
recognize the original date of hire of employees shown on Schedule 6 and
employed after Closing by Purchaser for purpose of service related benefits
by Purchaser;
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(b) Purchaser shall use reasonable efforts to assist the
Sellers in obtaining necessary consents and approvals to the assignment of the
Lease and the Assumed Contracts and any other rights which are to be assumed by
Purchaser in accordance with this Agreement;
(c) Purchaser shall make applications to such
governmental authorities and agencies as Purchaser deems appropriate to ensure
that licenses, permits, and certificates held by the Sellers are transferred to
Purchaser as of the Closing, and at the request of the Sellers shall join and
cooperate in any such application which the Sellers may make; and
(d) Purchaser shall do all reasonable things and cause
all reasonable things to be done to ensure that the warranties and
representations of Purchaser contained in this Agreement remain true and
correct throughout the period until Closing, as if such representations and
warranties were continuously made throughout such period.
14. INDEMNITY BY THE SELLERS AND THE STOCKHOLDERS. Without
limiting any of their other obligations under this Agreement, the Sellers and
the Stockholders, individually agree to indemnify and hold harmless Purchaser
and its affiliates, Officers, directors, Stockholders and employees against and
from any loss, liability, damages, cost or expense incurred by them (including,
but not limited to, reasonable attorneys' and accounting fees and expenses)
based upon, arising out of, or relating to: (i) any materially inaccurate,
untruthful or erroneous representation or warranty of the Sellers or the
Stockholders set forth in this Agreement or any certificate or document
delivered pursuant to this Agreement; (ii) any material failure
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to perform with respect to any of the covenants, conditions or agreements of
the Sellers or the Stockholders set forth in this Agreement, or any transaction
contemplated in this Agreement, except that each Stockholder shall be liable to
Purchaser only for Sellers' or such Stockholders' individual conduct and
compliance with the non-compete provisions of this Agreement subsequent to the
Closing; or (iii) the ownership or operation of the Office through the Closing
Date.
15. INDEMNITY BY PURCHASER. Purchaser agrees to indemnify and
hold harmless the Sellers and the Stockholders against and from any loss,
liability, damages, cost or expense incurred by them (including but not limited
to reasonable legal, attorneys' and accounting fees and expenses) based upon,
arising out of, or relating to: (i) any breach of any representation or
warranty of Purchaser set forth in this Agreement or any certificate or
document delivered pursuant to this Agreement; (ii) the breach of any covenant
or agreement of Purchaser set forth in this Agreement; or (iii) the ownership
or operation of the Office after the Closing Date.
16. TERMINATION OF AGREEMENTS. The Sellers and the
Purchaser agree, that upon completion of the Closing, the Franchise Agreements
and any other agreements relating to the Franchise will terminate without
separate notice to any party as of the Closing Date, subject to the
post-termination obligations of the Sellers and Purchaser under the Franchise
Agreement and any other agreements, including but not limited to SIP. If the
parties fail to Close for any reason, the Franchise Agreement, SIP Agreement,
and any other agreements thereto, shall remain in full force and effect in
accordance with their terms.
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17. LOSS OR DESTRUCTION. Sellers shall continue to own and
operate the Offices until the Closing Date. Sellers shall assume all risk of
loss, destruction, or damage due to fire or other casualty until such date.
Purchaser shall have the right to cancel this Agreement if the Offices are
interrupted prior to said date by loss, destruction, or damage due to fire or
other casualty. If Purchaser does not exercise its right to cancel, as stated
herein, Purchaser shall take the Assets in the existing condition, together
with any insurance proceeds payable by virtue of such loss or damage.
18. CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE. The
obligation of Purchaser to consummate the transactions herein contemplated is,
at Purchaser's option, subject to the following express conditions precedent:
(a) The Assets shall be free and clear of all mortgages,
liens, security interests, pledges, charges, obligations and other
encumbrances;
(b) The representations and warranties of the Sellers and
the Stockholders contained in this Agreement shall be true in all material
respects at and as of Closing, as though such representations and warranties
had been made at and as of the Closing;
(c) The Sellers and the Stockholders shall have delivered
all of the items to be delivered by them to Purchaser at Closing pursuant to
Subsection 8 above, and shall not be in default under any other provision of
this Agreement at or prior to Closing;
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(d) The Assets shall not have been damaged as the result
of any act of God, fire, flood, war, labor disturbance or similar calamity
(unless Purchaser has waived the event), and there shall have been no material
adverse changes in the Assets, the Office, or the financial condition of the
Sellers since the execution of this Agreement;
(e) Purchaser has obtained approval of its Senior Lenders
for this transaction; and
(f) Sellers shall have delivered to Purchaser executed
UCC-3 statements for any liens on Sellers' Assets.
19. CONDITIONS PRECEDENT TO THE SELLERS' OBLIGATION TO CLOSE. The
obligation of the Sellers to consummate the transactions contemplated herein at
Closing is, at the option of the Sellers, subject to the following express
conditions precedent:
(a) The representations and warranties of Purchaser
contained in this Agreement were true when made and shall be true in all
material respects at and as of Closing, as though such representations and
warranties had been made at and as of Closing; and
(b) Purchaser shall have delivered all of the items to be
delivered by it to the Sellers and the Stockholders at Closing pursuant to
Subsection 9 above, and shall not be in default under any other provisions of
this Agreement at or prior to Closing.
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20. ADDITIONAL POST-CLOSING RESPONSIBILITIES. The parties shall
comply with the following obligations after the Closing:
(a) At Purchaser's request, without further
consideration, the Sellers and the Stockholders will execute and deliver after
Closing such further instruments of conveyance and transfer and take such other
action as Purchaser may reasonably require for the transfer of the Assets;
(b) At the request of Sellers, without further
consideration, Purchaser will execute and deliver after Closing such further
evidence as the Sellers may reasonably require of Purchaser's assumption of the
Lease and the Assumed Contracts;
(c) For ninety (90) days after the Closing Date at
Purchaser's request, the Sellers and the Stockholders shall assist Purchaser in
every reasonable manner in billing and collection efforts and in maintaining
the business relationships presently enjoyed by the Sellers and the
Stockholders with respect to the Office;
(d) Except for assisting Professional Staffing Services
initially in the implementation of Spectrum Software, the Sellers and the
Stockholders agree that for a period of three (3) years after the Closing Date,
they will not, directly or indirectly:
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(i) own, operate, manage, be employed by, engage
in, provide assistance to, or have a financial interest in any temporary
employment services business, permanent placement business, or similar business
within the county(s) of Cook, DuPage, and McHenry, in the State of Illinois
and within the county(s) of Kalamazoo, in the State of Michigan, so long as
Purchaser, or a person or entity deriving title from Purchaser to operate the
Office, continues to operate the Office. For purposes of this provision
"temporary employment services business" includes, but is not limited to,
"employee leasing," "temp-to-hire," and "contract temporary" services;
(ii) solicit employment services business from any
client with whom the Office did business, if such client placed an order with
Sellers within the three (3) year period prior to the Closing Date; or
(iii) for a period of three (3) years employ or
seek to employ any employee of the Office or Purchaser or in any other manner
attempt, directly or indirectly, to influence, induce or encourage any employee
to leave the employment of the Office or Purchaser.
(e) Within fourteen (14) days subsequent to Closing,
Sellers shall provide to Purchaser an affidavit stating that all state and
local taxes due through the Closing Date have been paid. Sellers shall timely
file all federal, state and local tax returns relating to the period through
the Closing Date which become due after the Closing Date; shall timely pay all
taxes shown by such returns to be due and payable, together with any interest
or penalties which may be assessed by taxing authorities on any taxes which
were not timely paid; and shall deliver to Purchaser copies of all tax
clearance letters and closing notices received from government authorities
which relate to the Office.
29
<PAGE> 30
(f) (i) Sellers and Brett S. Hardt ("Hardt") hereby
each acknowledges, covenants, agrees and authorizes, that if Hardt breaches or
causes Sellers to breach Subsection 20(d) of this Agreement, Purchaser shall
have the right to withhold payment under the Rolling Meadows Note, the
Kalamazoo Note, the Des Plaines Note and all other amounts otherwise payable by
Purchaser to Sellers and the Stockholders, whether or not evidenced by a note
(collectively, the "Note Amounts"); and upon determination of the amount of any
damages sustained by Purchaser because of such breach of Subsection 20(d),
Purchaser shall have the right to offset and retain such damages against an
aggregate amount, which shall equal fifty percent (50%) of the aggregate amount
of all outstanding principal due and owing under and pursuant to the Note
Amounts.
(ii) Sellers and Jeff Albrecht ("Albrecht") hereby each
acknowledges, covenants, agrees and authorizes, that if Albrecht breaches or
causes Sellers to breach Subsection 20(d) of this Agreement, Purchaser shall
have the right to withhold payment under the Rolling Meadows Note, the
Kalamazoo Note, the Des Plaines Note and all other amounts otherwise payable by
Purchaser to Sellers and the Stockholders, whether or not evidenced by a note
(collectively, the "Note Amounts"); and upon determination of the amount of
any damages sustained by Purchaser because of such breach of Subsection 20(d),
Purchaser shall have the right to offset and retain such damages against an
aggregate amount, which shall equal fifty percent (50%) of the aggregate amount
of all outstanding principal due and owing under and pursuant to the Note
Amounts.
(iii) Sellers and Stockholders each hereby further
acknowledge, covenant and agree that Purchaser shall retain the above-stated
rights of offset and that Purchaser shall not be in breach of the
30
<PAGE> 31
terms of this Agreement until resolution of the breach of Subsection 20(d)
occurs, whether by agreement, compromise, settlement or final unappealable
judgment.
(iv) The withholding of Note payments to either or both
Stockholders and the establishment of actual damages shall be in addition to
all other rights of Purchaser whether at law or in equity.
21. NOTICES. All notices pursuant to this Agreement shall be sent
in writing to addresses set forth below, unless changed by written notice in
accordance with this Section 21. Any notice sent by telecopy shall be
confirmed by mail.
<TABLE>
<S> <C>
To Sellers and/or the Stockholders: BRETT HARDT
------------------------------
21839 WEST RIVERIA COURT
------------------------------
IVANHOE, ILLINOIS 60060
------------------------------
JEFF ALBRECHT
------------------------------
412 HILL COURT
------------------------------
WAUCONDA, ILLINOIS 60084
------------------------------
SCOTT WELLS
------------------------------
1033 WIMBLETON
------------------------------
ISLAND LAKE, ILLINOIS 60042
------------------------------
To Purchaser: SNELLING AND SNELLING, INC.
------------------------------
12801 N. CENTRAL EXPRESSWAY
------------------------------
SUITE 700
------------------------------
DALLAS, TEXAS 75243
------------------------------
ATTN: RICHARD H. SPRAGINS
------------------------------
Telecopy No.: (214)239-6879
</TABLE>
31
<PAGE> 32
22. TERMINATION. (a) The Sellers or Purchaser may terminate
this Agreement by written notice to the other in the event the transactions
contemplated herein have not closed by November 15, 1996; and
(b) This Agreement may also be terminated at any time
prior to the Closing date:
(i) By mutual consent of Purchaser and Sellers;
(ii) By the Purchaser, if any of the conditions of
its obligations hereunder shall not have been satisfied at or prior to the
Closing on the Closing Date and shall not have been waived by it; and
(iii) By the Sellers, if any of the conditions of
its obligations hereunder shall not have been satisfied at or prior to the
Closing on the Closing Date, or if the senior lender approval by this Agreement
shall not have been obtained by Purchaser and the requirements shall not have
been waived by it.
(c) Such notice of termination shall be effective as to
all parties to this Agreement, whether or not they receive notice individually.
If this Agreement is terminated by the Sellers or by Purchaser for the reason
stated above without consummation of the transactions contemplated herein, such
termination shall be without liability or further obligation by any party to
any other party to this Agreement.
23. GENERAL PROVISIONS. (a) Each party shall bear its
own legal and other costs and expenses in connection with the negotiation,
preparation and execution of this Agreement, and the performance of the
transactions contemplated hereby;
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<PAGE> 33
(b) This Agreement and the documents referred to herein
constitute the entire agreement among the parties with respect to the sale and
purchase of the Assets and supersede all previous written or oral negotiations,
commitments, and writing concerning the same subject matter;
(c) This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument;
(d) This Agreement may be amended only in writing and
executed by all of the parties;
(e) This Agreement will inure to the benefit of, and
bind, the respective heirs, personal representatives, successors and permitted
assigns of the parties;
(f) The parties represent that no person is entitled to
any brokerage commission, finder's fee, or any other like payment in connection
with any transaction contemplated by this Agreement, by reason of the action of
any party to this Agreement; and
(g) This Agreement shall be governed by the laws of the
State of Texas.
24. MEDIATION AND ARBITRATION. THE PARTIES AGREE THAT ANY
AND ALL DISPUTES, CLAIMS OR CONTROVERSIES ARISING OUT OF OR RELATING TO THIS
AGREEMENT SHALL BE SUBMITTED TO J.A.M.S/ENDISPUTE,
33
<PAGE> 34
OR ITS SUCCESSOR, FOR MEDIATION, AND IF THE MATTER IS NOT RESOLVED THROUGH
MEDIATION, THEN IT SHALL BE SUBMITTED TO J.A.M.S./ENDISPUTE, OR ITS SUCCESSOR,
FOR FINAL AND BINDING ARBITRATION. EITHER PARTY MAY COMMENCE MEDIATION BY
PROVIDING TO J.A.M.S/ENDISPUTE, AND THE OTHER PARTY A WRITTEN REQUEST FOR
MEDIATION, SETTING FORTH THE SUBJECT OF THE DISPUTE AND THE RELIEF REQUESTED.
THE PARTIES WILL COOPERATE WITH J.A.M.S/ENDISPUTE AND WITH ONE ANOTHER IN
SELECTING A MEDIATOR FROM J.A.M.S/ENDISPUTE'S PANEL OF NEUTRALS, AND IN
SCHEDULING THE MEDIATION PROCEEDINGS. THE PARTIES COVENANT THAT THEY WILL
PARTICIPATE IN THE MEDIATION IN GOOD FAITH, AND THAT THEY WILL SHARE EQUALLY IN
ITS COSTS. ALL OFFERS, PROMISES, CONDUCT AND STATEMENTS, WHETHER ORAL OR
WRITTEN, MADE IN THE COURSE OF THE MEDIATION BY ANY OF THE PARTIES, THEIR
AGENTS, EMPLOYEES, EXPERTS AND ATTORNEYS, AND BY THE MEDIATOR OR ANY
J.A.M.S/ENDISPUTE EMPLOYEES, ARE CONFIDENTIAL, PRIVILEGED AND INADMISSIBLE FOR
ANY PURPOSE, INCLUDING IMPEACHMENT, IN ANY ARBITRATION OR OTHER PROCEEDING
INVOLVING THE PARTIES, PROVIDED THAT EVIDENCE THAT IS OTHERWISE ADMISSIBLE OR
DISCOVERABLE SHALL NOT BE RENDERED INADMISSIBLE OR NON-DISCOVERABLE AS A RESULT
OF ITS USE IN THE MEDIATION.
THE PARTIES AGREE THAT ANY AND ALL DISPUTES, CLAIMS OR CONTROVERSIES ARISING
OUT OF OR RELATING TO THIS AGREEMENT THAT ARE NOT RESOLVED BY THEIR MUTUAL
AGREEMENT OR MANDATORY OR REASONABLE MEDIATION SET FORTH ABOVE, SHALL BE
SUBMITTED TO FINAL AND BINDING ARBITRATION BEFORE J.A.M.S/ENDISPUTE, OR ITS
SUCCESSOR, PURSUANT TO THE UNITED STATES ARBITRATION ACT, 9 U.S.C. SEC. 1 ET
SEQ. EITHER PARTY MAY COMMENCE THE ARBITRATION PROCESS CALLED FOR IN THIS
AGREEMENT BY FILING A WRITTEN DEMAND FOR ARBITRATION WITH J.A.M.S/ENDISPUTE,
WITH A COPY TO THE OTHER PARTY. THE ARBITRATION WILL BE CONDUCTED IN
ACCORDANCE WITH THE PROVISION OF J.A.M.S/ENDISPUTE'S COMPREHENSIVE ARBITRATION
RULES AND PROCEDURES IN EFFECT AT THE TIME OF FILING OF THE DEMAND FOR
ARBITRATION. THE PARTIES WILL
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<PAGE> 35
COOPERATE WITH J.A.M.S/ENDISPUTE AND WITH ONE ANOTHER IN SELECTING AN
ARBITRATOR FROM J.A.M.S/ENDISPUTE'S PANEL OF NEUTRALS, AND IN SCHEDULING THE
ARBITRATION PROCEEDINGS. THE PARTIES COVENANT THAT THEY WILL PARTICIPATE IN
THE ARBITRATION IN GOOD FAITH, AND THAT THEY WILL SHARE EQUALLY IN ITS COSTS.
THE PROVISIONS OF THIS PARAGRAPH MAY BE ENFORCED BY ANY COURT OF COMPETENT
JURISDICTION, AND THE PARTY SEEKING ENFORCEMENT SHALL BE ENTITLED TO AN AWARD
OF ALL COSTS, FEES AND EXPENSES, INCLUDING ATTORNEYS FEES, TO BE PAID BY THE
PARTY AGAINST WHOM ENFORCEMENT IS ORDERED.
25. CONFIDENTIALITY. Neither Purchaser nor Sellers, nor
any of their respective Stockholders, affiliates, Officers, employees, agents
or representatives shall: (a) make any press releases or any published
statement concerning the transactions contemplated herein without the prior
written consent of all of the parties hereto, which consent shall not be
withheld where such press releases or statement is required by applicable law;
or (b) disclose the terms or existence of this Agreement to any person or
entity, other than to their respective attorneys and other representatives, and
to those parties such as bankers and lessors with whom they must communicate in
order to consummate the proposed transactions. Purchaser and Sellers shall be
permitted to discuss the transactions contemplated herein with their respective
suppliers and vendors, provided that they instruct such suppliers and vendors
to keep all such communications confidential.
26. BULK TRANSFER LAWS. The parties waive compliance with
the requirements of the bulk transfer or bulk sales law of any jurisdiction in
connection with the sale of the Assets to Purchaser under this
35
<PAGE> 36
Agreement. Sellers shall indemnify and hold Purchaser harmless against any and
all losses incurred by Purchaser as a result of noncompliance with any such
laws.
27. RELEASE BY SELLERS AND STOCKHOLDERS. The Sellers and
each Stockholder, for themselves and on behalf of their officers, directors,
employees, successors, representatives, and agents, do hereby irrevocably and
unconditionally release, acquit, and forever discharge (the "Release")
Purchaser, its officers, directors, stockholders, employees, successors,
representatives, and agents from any and all claims, debts, damages, demands,
liabilities, suits in equity, complaints, grievances, obligations, promises,
agreements, rights, controversies, consents, losses, damages, attorneys' fees
and expenses, punitive damages and other compensation, suits, appeals, actions,
and causes of actions, of whatever kind of character, whether heretofore or
hereafter accruing, whether known or unknown, suspected or unsuspected,
specified or unspecified, fixed or contingent, liquidated or unliquidated, for
or because of any matter or thing done, omitted, or suffered to be done by,
Purchaser, its officers, directors, stockholders, employees, successors,
representatives, and agents, for any incidents, including those past and
present, which may have existed prior to, or contemporaneously with, the
execution of this Agreement, or subsequent to the execution of this Agreement
if arising out of conduct occurring before the execution of this Agreement.
The Sellers and each Stockholder hereby represent that nothing which is
released hereunder has been transferred, assigned, or given away prior to the
date hereof to any person, firm, or entity.
(a) It is the intention of the Sellers and each Stockholder in
executing this Agreement that the Release shall be effective as a bar to each
and every claim, demand, and cause of action hereinabove
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<PAGE> 37
specified, and the Sellers and each Stockholder hereby knowingly and
voluntarily waive any and all rights and benefits. The Sellers and each
Stockholder expressly consent that, this release shall be given full force and
effect according to each and all of its express terms and provisions, including
those relating to unknown and unspecified claims, demands, and causes of
action. The Sellers and each Stockholder acknowledge and agree that this
waiver is an essential and material term of the Release of this Agreement and
without the waiver of transaction contemplated by this Agreement would not be
consummated.
28. RELEASE BY PURCHASER. The Purchaser, for itself and on
behalf of their officers, directors, employees, successors, representatives,
and agents, do hereby irrevocably and unconditionally release, acquit, and
forever discharge (the "Release") the Sellers and Stockholders, its officers,
directors, employees, successors, representatives, and agents from any and all
claims, debts, damages, demands, liabilities, suits in equity, complaints,
grievances, obligations, promises, agreements, rights, controversies, consents,
losses, damages, attorneys' fees and expenses, punitive damages and other
compensation, suits, appeals, actions, and causes of actions, of whatever kind
of character, whether heretofore or hereafter accruing, whether known or
unknown, suspected or unsuspected, specified or unspecified, fixed or
contingent, liquidated or unliquidated, for or because of any matter or thing
done, omitted, or suffered to be done by, the Sellers and Stockholders, its
officers, directors, employees, successors, representatives, and agents, for
any incidents, including those past and present, which may have existed prior
to, or contemporaneously with, the execution of this Agreement, or subsequent
to the execution of this Agreement if arising out of conduct occurring before
the execution of this Agreement. The Purchaser hereby represents
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<PAGE> 38
that nothing which is released hereunder has been transferred, assigned, or
given away prior to the date hereof to any person, firm, or entity.
(a) It is the intention of the Purchaser in executing this
Agreement that the Release shall be effective as a bar to each and every claim,
demand, and cause of action hereinabove specified, and the Purchaser hereby
knowingly and voluntarily waives any and all rights and benefits. The
Purchaser expressly consents that, this release shall be given full force and
effect according to each and all of its express terms and provisions, including
those relating to unknown and unspecified claims, demands, and causes of
action. The Purchaser acknowledges and agrees that this waiver is an essential
and material term of the Release of this Agreement and without the waiver of
transaction contemplated by this Agreement would not be consummated.
29. SURVIVAL OF REPRESENTATIONS. All representations, warranties and
agreements made by the parties hereto, shall survive Closing.
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<PAGE> 39
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
under seal of the date first written above.
PAR FOUR SERVICES, INC. STOCKHOLDERS:
BY: /s/ BRETT S. HARDT BY: /s/ BRETT S. HARDT
--------------------- ---------------------------
Brett S. Hardt Brett S. Hardt
PRESIDENT
BY: /s/ JEFF ALBRECHT
---------------------------
Jeff Albrecht
BY: /s/ SCOTT WELLS
---------------------------
Scott Wells
SNELLING AND SNELLING, INC.
By: /s/ RICHARD H. SPRAGINS
------------------------
Richard H. Spragins
Senior Vice President
<PAGE> 1
EXHIBIT 10.25
ASSET PURCHASE AGREEMENT
BETWEEN
PAR FIVE SERVICES, INC.
(THE "SELLERS")
AND BRETT S. HARDT, JEFF ALBRECHT, AND LILA PETROVICH
(THE "STOCKHOLDERS")
AND
SNELLING AND SNELLING, INC. ("PURCHASER")
1
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2. Sale and Transfer of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3. Assumption of Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4. Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5. Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6. Allocation of Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7. Collection of Accounts Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8. Closing Deliveries by the Sellers and Stockholders . . . . . . . . . . . . . . . . . . . . . . . 10
9. Closing Deliveries by Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
10. Representations and Warranties of the Sellers
and the Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
11. Covenants of the Sellers and the Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . 19
12. Representations and Warranties of Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
13. Covenants of Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
14. Indemnity by the Sellers and the Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . 24
15. Indemnity by Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
16. Termination of Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
17. Loss or Destruction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
18. Conditions Precedent to Purchaser's
Obligation to Close . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
19. Conditions Precedent to the Sellers'
Obligation to Close . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
20. Additional Post-Closing Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
21. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
22. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
23. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
24. Mediation and Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
25. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
26. Bulk Transfer Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
27. Release by Sellers and Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
28. Release by Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
29. Survival of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
2
<PAGE> 3
SCHEDULES
<TABLE>
<S> <C> <C>
Schedule 1 - Tangible Assets
Schedule 2 - Assumed Contracts
Schedule 3 - List of Receivables to be Delivered at Closing
Schedule 4 - Allocation of Purchase Price
Schedule 5 - Encumbrances
Schedule 6 - Employees
</TABLE>
3
<PAGE> 4
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is entered into
effective as of this 16th day of October, 1996, by and among Par Five Services,
Inc., an Illinois corporation (the "Sellers"), and BRETT S. HARDT, JEFF
ALBRECHT, AND LILA PETROVICH (the "Stockholders"), on one hand, and SNELLING
AND SNELLING, INC. ("Purchaser"), a Pennsylvania corporation, on the other
hand.
RECITALS
WHEREAS Sellers are operating one (1) "Snelling Personnel Services"
office (the "Office") pursuant to a certain franchise agreement with Purchaser
at the following location:
<TABLE>
<CAPTION>
Office No. Location of Office. Date of Franchise Agreement.
- ---------- ------------------- ----------------------------
<S> <C> <C>
F0305 900 Jorie Blvd. April 1, 1996
Suite 88
Oak Brook, Illinois 60521
</TABLE>
WHEREAS, Stockholders are the owners of one hundred percent (100%) of
the issued and outstanding common stock of Sellers;
WHEREAS, Sellers desire to sell, transfer, convey and assign to
Purchaser, and Purchaser desires to purchase, under the terms and conditions
set forth herein, all of the assets of Sellers associated with the Office,
including the trademarks, service marks, and trade names, if any, and the good
will associated with the Office;
4
<PAGE> 5
WHEREAS, Sellers' franchise agreement with Purchaser is referred to in
this Agreement as the "Franchise Agreement."
WHEREAS, Purchaser also desires to obtain assignments of certain
contracts and agreements relating to the operation of Sellers' Office and
agrees to assume certain of Sellers' obligations and liabilities.
NOW, THEREFORE, FOR AND IN CONSIDERATION of the mutual promises
contained herein, the parties agree as follows:
1. DEFINITIONS. The following words shall have the following
meanings when used in this Agreement:
(a) "Assets" shall mean all of the rights, title and
interest of Sellers in the assets, properties, rights, claims and contracts of
every kind, character and description, whether real or personal, tangible or
intangible, which are used or usable in, or relate to, the operation of the
Office, without regard to whether reflected on the Sellers' financial
statements or books. Specifically excluded from the Assets being sold
hereunder are any accounts receivable of the Sellers related to work performed
or services provided through the close of business of the day immediately prior
to the Closing Date. Assets being acquired by Purchaser are:
(i) the tangible assets set forth and identified
as being acquired by Purchaser in Schedule 1 to this Agreement;
5
<PAGE> 6
(ii) all contracts and relationships of Sellers
with clients and with temporary employees (as those terms are defined in the
Franchise Agreement);
(iii) Sellers' rights in and to the telephone
numbers and telephone directory advertising for the Office, and all other
intangible property, trade secrets, rights under Assumed Contracts (as defined
in Section 3), permits, and licenses associated with the Office;
(iv) any Internet names registered by Sellers;
(v) all of Sellers' trade names, trademarks, or
service marks used, or available for use, in Sellers' business;
(vi) the rights of the Sellers under the
assumption of the Lease of real property relating to the Office (the "Lease");
(vii) all inventory and supplies on hand as of the
Closing Date;
(viii) all business papers and records pertaining to
the Office, including but not limited to personnel records (including payroll
records) concerning each employee of the Sellers who will become employed by
the Purchaser after the Closing Date, client records, vendor lists, and
operations manuals; and
(ix) all Placement Receipts, if any, (as that term
is defined in the Franchise Agreement) except for those for which the employee
has both been offered permanent employment by a client and accepted such offer
of employment on or before the Closing Date.
6
<PAGE> 7
(b) "Closing" shall mean the events which take place for
the purpose of consummating the transactions contemplated by this Agreement,
commencing at 9:00 a.m. on Monday, November 4, 1996, at
Chicago, Illinois , or at another acceptable time and location to which the
parties agree; and
(c) "Closing Date" shall mean 12:01 a.m. on Monday,
November 4, 1996.
2. SALE AND TRANSFER OF CERTAIN ASSETS. Upon the terms and
subject to the conditions set forth in this Agreement, the Sellers agree to
sell, transfer, assign, grant, convey and deliver the tangible Assets listed on
Schedule 1 and all other Assets listed in Subsection 1(a) to Purchaser on the
Closing Date, free and clear of all mortgages, liens, security interests,
pledges, charges and other encumbrances. Notwithstanding any language that may
be stated in this Agreement, Sellers' accounts receivable as that term is
described herein, are not an Asset being sold, transferred, assigned, granted,
or conveyed to Purchaser.
3. ASSUMPTION OF LIABILITIES. Purchaser has not assumed, and
shall not assume, any liability or obligation of any nature, known or unknown,
existing or contingent, of the Sellers, except that, at Closing: (i) Purchaser
shall assume the Lease unless Purchaser notifies Sellers in writing within ten
(10) days of the Closing that Purchaser will not assume the Lease; and (ii) the
other written contracts and obligations specifically identified in Schedule 2
to this Agreement (the "Assumed Contracts"). Sellers shall assume and make
payments for the obligations for unused vacation and unused sick leave, if
any, accrued through the Closing Date by each employee of the Sellers. The
Sellers acknowledge that Purchaser does not assume any obligation in connection
with any actual or alleged breach or default of Lease or Assumed Contracts
7
<PAGE> 8
occurring at any time through the Closing Date. Except for the items specified
in clauses (i) and (ii) above, all obligations, liens, encumbrances, and
liabilities of the Sellers shall continue to be the sole responsibility of the
Sellers and Sellers shall hold Purchaser harmless.
4. PURCHASE PRICE. In reliance upon the representations
and warranties for the assets named herein, Purchaser shall pay the Sellers One
Hundred Fifty Thousand Dollars ($150,000) (the "Purchase Price"). The
Purchase Price shall be paid as follows:
(a) At Closing, Purchaser shall pay the Sellers One
Hundred Fifty Thousand Dollars ($150,000) in cash by certified check.
5. ALLOCATION OF PURCHASE PRICE. In accordance with Section
1060 of the Internal Revenue Code of 1986, as amended, the Purchase Price shall
be allocated in the manner set forth in Schedule 4 to this Agreement. The
Sellers, the Stockholders, and Purchaser each covenant and warrant to each
other that: (i) in no tax return filed by the parties or any of their
respective successors or assigns shall the allocation of the Purchase Price be
treated or reported inconsistently with or differently from the allocation of
the Purchase Price set forth in Schedule 4, unless such change in allocation is
the result of a determination by a governing authority for that year or a
preceding year; and (ii) in no tax audit, tax examination, tax or compliance
review or tax litigation will the parties or any of their respective successors
or assigns claim or assert that the allocation of the Purchase Price is or
should be inconsistent with or different from that set forth in Schedule 4,
unless as a result of a determination made by a governing authority in a
preceding year. The parties agree
8
<PAGE> 9
to file all appropriate Internal Revenue Service Forms with their respective
Federal income tax returns for their respective tax year in which the Closing
occurs.
6. ALLOCATION OF EXPENSES. All real estate taxes, personal
property taxes, rents, telephone charges, utilities, and other costs and
expenses of owning or operating the Assets which relate to periods both before
and after the Closing Date (the "Prorated Costs") shall be prorated on a per
diem basis as of the Closing Date, with the Sellers responsible for the portion
of all such items which relates to the period through the Closing Date, and
Purchaser responsible for the portion of all such items which relates to the
period after the Closing Date. Prorated Costs shall be settled between
Purchaser and Sellers either at Closing or as soon as practicable thereafter;
and
(a) Any sales tax, use tax, excise tax, transfer tax,
recording fee or other tax or fee imposed on the transfer of the Assets from
Sellers to Purchaser shall be paid by Sellers.
7. COLLECTION OF ACCOUNTS RECEIVABLE. With respect to the
accounts receivable for the placement of employees, Sellers shall be entitled
to all monies owed Sellers, as evidenced by the accounts receivable list at
time of Closing covering all work completed through Friday, October 25, 1996,
to be followed by a subsequent report covering accounts receivable up to
Closing, which shall be due Purchaser by Thursday, November 7, 1996.
Purchaser shall be entitled to all monies received from the generation of
accounts receivable subsequent to November 3, 1996; and
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(a) As described above, Sellers shall provide at Closing
or immediately thereafter, a list of placement and temporary accounts
receivable due Sellers on the Closing Date. For ninety (90) days subsequent to
the Closing, Purchaser shall be responsible for the collection of such accounts
receivable and shall provide Sellers a weekly report accompanied by all monies
due Sellers in accordance with Sellers' Franchise Agreements with Purchaser
except that Sellers shall be responsible for all collection efforts with
inactive clients' accounts receivable which are over sixty (60) days old.
Inactive client shall be defined as a client who has not utilized the services
of Sellers within six (6) months of the Closing Date. Purchaser shall return
to Sellers at the end of the ninety (90) day period all uncollected accounts
receivable for further collection efforts by Sellers. Purchaser shall incur no
liability to Sellers for the uncollectibility of said accounts receivable.
Thereafter, Sellers shall submit to Purchaser monthly reports of all collection
activity accompanied by all monies due Purchaser in accordance with the
provisions of the Franchise Agreement. Sellers shall receive credit for all
collections subsequent to Closing, whether by Sellers or Purchaser, under the
Sales Incentive Program Agreement ("SIP") and shall receive payment in
accordance with SIP; and
(b) Sellers shall have access to all records to assist
Sellers in the collection of certain accounts receivable or for litigation or
government filing purposes.
8. CLOSING DELIVERIES BY THE SELLERS AND THE STOCKHOLDERS. The
Sellers and the Stockholders agree to execute and deliver at Closing, or cause
to be executed and delivered at Closing, the following:
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(a) Such instruments of transfer, assignment and conveyance
as shall be necessary or desirable in the judgment of Purchaser to vest in
Purchaser good and marketable title to the Assets free and clear of all
mortgages, liens, security interests, pledges, charges and other encumbrances.
Such instruments of transfer shall include:
(i) A Bill of Sale from the Sellers, in the form
furnished to the Sellers by Purchaser;
(ii) The written consent of the lessor to the
assignment and assumption of the Lease provided, however, if Sellers cannot
obtain any such assignment and assumption, Sellers shall assign any and all
rights they have in the Lease. Sellers shall indemnify and hold harmless
Purchaser from any and all damages and costs incurred by Purchaser if the
lessor rejects the Sellers' assignment of its rights to Purchaser and either
reforms the Lease or terminates the Lease, so long as lessor's action is based
upon the assignment and not a breach by Purchaser of any of the terms of the
Lease Purchaser accepted from Sellers. Sellers shall use their best efforts to
obtain all such assignments and assumptions;
(iii) Cooperation of parties to receive written
consents of third parties under the Assumed Contracts to the assignment and
assumption of the Assumed Contracts as soon as possible;
(iv) Form UCC-3 termination statements, signed by
the creditor, to cancel any financing statements disclosed in Schedule 5 to
this Agreement (other than financing statements filed in connection with
Assumed Contracts);
(v) Unanimous written consents, signed by all
Stockholders of the Sellers, in a form consistent with the Sellers' bylaws and
state laws, approving the transactions contemplated hereunder, and any other
duly executed corporate and other documents which Purchaser may have reasonably
requested
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hereunder, satisfactory in form and substance, in the reasonable judgment of
Purchaser, and where appropriate certified by the proper corporate or
governmental authorities; and
(vi) The written consents of any other persons
whose approval or consent to the execution, delivery, and performance of this
Agreement by the Sellers is legally or contractually required.
(b) The originals of the Lease, and (if written) the
Assumed Contracts;
(c) A certificate signed by the president of Sellers to
the effect that all representations and warranties of Sellers contained in this
Agreement are true at and as of Closing, that Sellers have performed all
agreements on its part required to be performed hereunder, and that Sellers are
not in default under any of the provisions of this Agreement;
(d) Copies of insurance policies conforming to Subsection
10(m);
(e) A letter to the telephone company servicing Sellers
requesting transfer to Purchaser of the telephone number (including numbers for
facsimile machines and modems) and listings applicable to the Office;
(f) List of accounts receivable as of the Closing Date as
provided in Section 7;
(g) Any names or addresses Sellers have registered for
use on the Internet; and
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(h) No later than (5) days prior to Closing, Sellers
shall submit to Purchaser such other instruments, documents or affidavits, in
form and substance reasonably acceptable to Purchaser, as may be necessary to
effect the Closing.
9. CLOSING DELIVERIES BY PURCHASER. In addition to delivery of
the amount required under Subsection 4(a) above, Purchaser agrees to execute
and deliver at the Closing, or cause to be executed and delivered at Closing:
(a) Immediately available funds in the amount provided in
Subsection 4(a);
(b) Such instruments as shall be necessary or desirable
in the judgment of the Sellers to effect the assumption by Purchaser of the
Lease and the Assumed Contracts;
(c) Certified copy of resolutions duly adopted by the
Board of Directors of Purchaser authorizing the execution and delivery of this
Agreement and consummation of transactions described herein, which shall be in
full force and effect at the time of delivery;
(d) A certificate signed by the president of Purchaser to
the effect that all representations and warranties of Purchaser contained in
this Agreement are true at and as of Closing, that Purchaser has performed all
agreements on its part required to be performed hereunder, and that Purchaser
is not in default under any of the provisions of this Agreement;
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(e) Written consent from the bank, approving the
transactions herein;
(f) Certified copy of resolutions authorizing Richard H.
Spragins to act or sign documents on behalf of Purchaser as an authorized
agent; and
(g) With respect to Lease deposits, Sellers shall not
seek nor accept the return of the Lease deposit, or any part thereof, and
Purchaser shall pay to Sellers at Closing, among other payments, an amount
sufficient to cover Sellers' Lease deposit with Lessor. In the event lessor
terminated the Lease agreement and the termination is based upon the change of
lessees, Sellers shall request return of Lease deposit from lessor and return
to Purchaser the amount received from lessor.
10. REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE
STOCKHOLDERS. The Sellers and the Stockholders, jointly and severally,
represent and warrant as follows:
(a) The Sellers have been duly organized and are validly
existing and in good standing under the laws of the State of Illinois;
(b) The Stockholders together own all of the issued and
outstanding stock of the Sellers. The execution, delivery, and performance of
this Agreement have been duly authorized by the Board of Directors of the
Sellers, and all necessary Stockholders action under the Sellers' bylaws and
Illinois law has
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been taken for approval of the execution and delivery of this Agreement by the
Sellers, their performance of the terms of this Agreement, and the consummation
of the transactions contemplated hereunder;
(c) The execution and delivery of this Agreement, the
Sellers' performance hereunder, and the consummation of the transactions herein
contemplated, do not, and to the best of the Stockholders' knowledge will not
immediately or with the passage of time, the giving of notice or otherwise,
result in the breach of, constitute a default or violation under, or accelerate
any obligation under any agreement or other instruments to which either the
Sellers or any of the Stockholders are a party, or may be bound, so as to give
or create any rights in third parties with respect to the Assets;
(d) The Sellers have good title and right to use of all
trade names, trademarks or service marks used or available for use in Sellers'
Office, and neither the Sellers nor the Stockholders have notice of any claim
concerning a violation of or infringement upon the rights of any third party
with respect to the use of any trade name, trademark, service mark, copyright
or patent;
(e) This Agreement and the other agreements and
transactions contemplated herein to which the Sellers are or will be a party
will each, upon execution and delivery, be a legal, valid, and binding
obligation of the Sellers, enforceable in accordance with its terms, except as
may be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally;
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(f) Except as disclosed in Schedule 5, the Sellers have
good and marketable title to the Assets free and clear of all mortgages, liens,
security interests, pledges, charges, obligations and other encumbrances;
(g) The Sellers have previously delivered to Purchaser
the Sellers' most recent federal income tax returns, balance sheets as of June
30, 1996, together with the Sellers' income statements for the fiscal year then
ended, and the interim balance sheets and income statements of the Sellers,
June 30, 1996, (collectively, the "Financial Statements"). The Financial
Statements reflect or provide for all material claims against, and all material
debts and liabilities relating to, the Office, fixed or contingent, as of the
dates of the Financial Statements. There has not been any change since the
date of the most recent Financial Statements which materially and adversely
affected the Office or the Assets or the financial condition or results of the
operation of the Sellers. The Financial Statements are true, correct and
complete and were prepared in good faith in accordance with a cash basis of
accounting which system is a comprehensive accounting method used by Sellers;
(h) The Sellers have filed all federal, state, and local
tax returns including income, sales, and payroll, which were required to be
filed prior to the date of this Agreement and have made payment of all taxes
shown by those returns to be due and payable;
(i) The Sellers have all requisite power and all known
necessary permits, certificates, contracts, approvals and other authorizations
required by federal, state, city, county or other municipal
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bodies to own, lease, and use the Assets to operate the Office in the manner in
which they are presently operated;
(j) In connection with the operation of the Office and
ownership and use of the Assets, there are not now and have not been any
material failures to comply with any applicable known local, state or federal
laws, regulations, ordinances or administrative or judicial orders, and no
allegations have been made of any such failure;
(k) Sellers are not subject to any order of any court or
governmental authority; any pending or, to the best of the Sellers' and the
Stockholders' knowledge, threatened action, suit, proceeding, inquiry or
investigation at law or in equity; or any proceeding before any court,
arbitrator, public board or body, in which an unfavorable decision, ruling or
finding would, in any way, prevent the carrying out of this Agreement or any of
the transactions contemplated hereunder, declare unlawful any such
transactions, cause such transactions to be rescinded, have a material adverse
effect on the Office or the financial condition of the Sellers;
(l) Except for the Lease and the Assumed Contracts, and
the encumbrances listed in Schedule 5, there are no agreements, Lease,
contracts, charges, encumbrances or restrictions which may restrict Purchaser's
use or right to use any of the Assets or which create obligations for which
Purchaser could be liable;
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(m) The Sellers have maintained liability insurance for
any claims which may have arisen or cause of action which may have accrued
during Sellers' ownership and/or operation of the Assets and the Office. Such
liability insurance is of the "occurrence" type, so that if the policies are
discontinued by the Sellers after the Closing Date, liability insurance
coverage will nevertheless continue (subject to the terms and conditions of
such policies) with respect to such claims and causes of action;
(n) Neither this Agreement nor any Exhibit, Schedule, or
attachment hereto, nor any certificate or other information or document
furnished by or on behalf of the Sellers or the Stockholders knowingly contains
any untrue statement of a material fact, or knowingly omits to state a material
fact necessary in order to make the statements contained herein or therein not
misleading;
(o) Schedule 6 to this Agreement is a list of all persons
currently employed by the Sellers. Schedule 6 accurately and completely shows
the listed employees' current rates of compensation. Sellers have no
employment agreements with any of its employees which Purchaser will be
required to assume and has no oral or written understandings with any of its
employees which relate to terms or conditions of such employee's employment
which Purchaser will be required to assume. Purchaser has agreed to employ
under employment at will agreements for Sellers' staff employees; and
(p) The Sellers have no pension sharing plans or employee
benefit plans (as that term is defined in the federal law commonly known as the
Employees' Retirement Income Security Act, as amended) for any of its
employees, which Purchaser will be required to assume.
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11. COVENANTS OF THE SELLERS AND THE STOCKHOLDERS. The Sellers
and the Stockholders covenant that, between the date of this Agreement and the
Closing, they will:
(a) Carry on the business of the Office in the ordinary
course;
(b) With Sellers' approval which will not be unreasonably
withheld and subject to any attorney client privilege, give Purchaser and its
attorneys, auditors and other representatives full access during normal
business hours to the Office and to the properties, books, contracts,
commitments and records pertaining to the Office;
(c) With Sellers' approval which will not be unreasonably
withheld and subject to any attorney client privilege, provide Purchaser with
access to such information concerning the affairs of the Office as Purchaser
may reasonably request, including authorizing the Sellers' auditors, attorneys
and other representatives to cooperate with Purchaser's auditors and attorneys
and other representatives and authorizing the Sellers' auditors to give
Purchaser's auditors full access to their files and working papers with respect
to the Office;
(d) Do all reasonable things and cause all reasonable
things to be done to ensure that the warranties and representations of the
Sellers and the Stockholders contained in this Agreement remain true and
correct throughout the period until Closing, as if such representations and
warranties were continuously made throughout such period;
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(e) Not enter into any new contracts, commitments or
transactions pertaining to the Office, except in the ordinary course of
business;
(f) Not sell, agree to sell, or otherwise dispose of any
of the Assets (other than supplies used or sold in the ordinary course of
business), without the prior written consent of Purchaser;
(g) Use best efforts to obtain the releases of all
mortgages, liens, security interests, pledges, charges, obligations, and other
encumbrances set forth in Schedule 5;
(h) Not create or assume any new pledge, lien, or
encumbrance with respect to the Assets;
(i) Maintain the Assets in as good repair, order, and
condition as they were in as of the date of this Agreement, reasonable wear and
use and damage by fire, acts of God, or other casualty excepted;
(j) Not incur any indebtedness, obligations, or liability
with respect to the Office or Assets or make any payment in respect thereof,
except in the ordinary course of business;
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(k) Pay, satisfy, and discharge the current obligations
and liabilities of the Office in the ordinary course of business, including but
not limited to royalties accruing under the Franchise Agreements and any other
amounts payable to Purchaser and its affiliates;
(l) File all federal, state, and local tax returns which
become due prior to the Closing, and pay all taxes shown by those returns to be
due and payable, together with any interest or penalties which may be assessed
by taxing authorities on any taxes which were not timely paid;
(m) Maintain or cause to be maintained in full force and
effect all of the fire and other insurance on property and all of the
liability and other casualty insurance (including any bonds on personnel) that
was in effect with respect to the Office as of the date of this Agreement;
(n) Use reasonable efforts to preserve intact the
Sellers' business organization and the goodwill of the Sellers' Clients and
suppliers;
(o) Conduct advertising and promotion for the Office
consistent with the amount and type of such advertising and promotion conducted
during the twelve months prior to the date of this Agreement;
(p) Maintain the books of account and records of the
Office in the usual manner;
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(q) Promptly, at Purchaser's request, join and cooperate
in any application which Purchaser may make in order to ensure the timely
transfer of any licenses, permits, or certificates to Purchaser at Closing;
(r) Promptly advise Purchaser in writing of any material
adverse change with respect to the Office, the Assets, or the financial
condition of the Sellers; and
(s) Deliver to Purchaser prompt written notice of any
event or condition known to either the Sellers or to any of the Stockholders
which, if it had existed on the date of execution of this Agreement, would have
constituted a breach of any of their representations and warranties under this
Agreement.
12. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser
represents and warrants as follows:
(a) Purchaser has been duly organized and is validly
existing and in good standing under the laws of the Commonwealth of
Pennsylvania. Purchaser is qualified to do business and is in good standing
under the laws of the State of Texas, where it has its headquarters.
Purchaser's wholly owned subsidiary Advance Processing Systems, Inc. is
qualified to do business and is in good standing under the laws of the State of
Illinois;
(b) The execution, delivery and performance of this
Agreement have been duly authorized by the Board of Directors of Purchaser, and
Purchaser has the complete and unrestricted power and authority to, and has
taken all corporate action necessary to enter into, execute and deliver this
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Agreement and to perform all of its obligations hereunder and to consummate all
transactions contemplated herein; and
(c) This Agreement and the other agreements and
transactions contemplated herein to which Purchaser is or will be a party will
each, upon execution and delivery, be a legal, valid and binding obligation of
Purchaser enforceable in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally. This Agreement does not conflict with any other
agreement affecting Purchaser.
13. COVENANTS OF PURCHASER. Purchaser covenants that, between the
date of this Agreement and the Closing:
(a) Purchaser will offer to hire the employees of the
Sellers listed on Schedule 6, subject to Purchaser's ordinary pre-employment
and post-employment standards and conditions, at rates of pay and with benefits
consistent with those of similarly-situated employees of Purchaser. Purchaser
shall have no obligation to offer employment to any specific individual listed
in Schedule 6 who does not meet Purchaser's ordinary standards and conditions,
or to offer any individual on Schedule 6 pay or benefits comparable to those
identified in such Schedule. Purchaser assumes no liability for any wages or
other benefits (including but not limited to bonuses, vacations, sick leave,
retirement benefits, and medical benefits) accrued by any person listed in
Schedule 6 during such person's employment by the Sellers. Purchaser shall
recognize the
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original date of hire of employees shown on Schedule 6 and employed after
Closing by Purchaser for purpose of service related benefits by Purchaser;
(b) Purchaser shall use reasonable efforts to assist the
Sellers in obtaining necessary consents and approvals to the assignment of the
Lease and the Assumed Contracts and any other rights which are to be assumed by
Purchaser in accordance with this Agreement;
(c) Purchaser shall make applications to such
governmental authorities and agencies as Purchaser deems appropriate to ensure
that licenses, permits, and certificates held by the Sellers are transferred to
Purchaser as of the Closing, and at the request of the Sellers shall join and
cooperate in any such application which the Sellers may make; and
(d) Purchaser shall do all reasonable things and cause
all reasonable things to be done to ensure that the warranties and
representations of Purchaser contained in this Agreement remain true and
correct throughout the period until Closing, as if such representations and
warranties were continuously made throughout such period.
14. INDEMNITY BY THE SELLERS AND THE STOCKHOLDERS. Without
limiting any of their other obligations under this Agreement, the Sellers and
the Stockholders, individually agree to indemnify and hold harmless Purchaser
and its affiliates, Officers, directors, Stockholders and employees against and
from any loss, liability, damages, cost or expense incurred by them (including,
but not limited to, reasonable
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attorneys' and accounting fees and expenses) based upon, arising out of, or
relating to: (i) any materially inaccurate, untruthful or erroneous
representation or warranty of the Sellers or the Stockholders set forth in
this Agreement or any certificate or document delivered pursuant to this
Agreement; (ii) any material failure to perform with respect to any of the
covenants, conditions or agreements of the Sellers or the Stockholders set
forth in this Agreement, or any transaction contemplated in this Agreement,
except that each Stockholder shall be liable to Purchaser only for Sellers' or
such Stockholders' individual conduct and compliance with the non-compete
provisions of this Agreement subsequent to the Closing; or (iii) the ownership
or operation of the Office through the Closing Date.
15. INDEMNITY BY PURCHASER. Purchaser agrees to indemnify and
hold harmless the Sellers and the Stockholders against and from any loss,
liability, damages, cost or expense incurred by them (including but not limited
to reasonable legal, attorneys' and accounting fees and expenses) based upon,
arising out of, or relating to: (i) any breach of any representation or
warranty of Purchaser set forth in this Agreement or any certificate or
document delivered pursuant to this Agreement; (ii) the breach of any covenant
or agreement of Purchaser set forth in this Agreement; or (iii) the ownership
or operation of the Office after the Closing Date.
16. TERMINATION OF AGREEMENTS. The Sellers and the
Purchaser agree, that upon completion of the Closing, the Franchise Agreements
and any other agreements relating to the Franchise will terminate without
separate notice to any party as of the Closing Date, subject to the
post-termination obligations of the Sellers and Purchaser under the Franchise
Agreement and any other agreements, including but not limited to
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<PAGE> 26
SIP. If the parties fail to Close for any reason, the Franchise Agreement, SIP
Agreement, and any other agreements thereto, shall remain in full force and
effect in accordance with their terms.
17. LOSS OR DESTRUCTION. Sellers shall continue to own and
operate the Offices until the Closing Date. Sellers shall assume all risk of
loss, destruction, or damage due to fire or other casualty until such date.
Purchaser shall have the right to cancel this Agreement if the Offices are
interrupted prior to said date by loss, destruction, or damage due to fire or
other casualty. If Purchaser does not exercise its right to cancel, as stated
herein, Purchaser shall take the Assets in the existing condition, together
with any insurance proceeds payable by virtue of such loss or damage.
18. CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE. The
obligation of Purchaser to consummate the transactions herein contemplated is,
at Purchaser's option, subject to the following express conditions precedent:
(a) The Assets shall be free and clear of all mortgages,
liens, security interests, pledges, charges, obligations and other
encumbrances;
(b) The representations and warranties of the Sellers and
the Stockholders contained in this Agreement shall be true in all material
respects at and as of Closing, as though such representations and warranties
had been made at and as of the Closing;
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(c) The Sellers and the Stockholders shall have delivered
all of the items to be delivered by them to Purchaser at Closing pursuant to
Subsection 8 above, and shall not be in default under any other provision of
this Agreement at or prior to Closing;
(d) The Assets shall not have been damaged as the result
of any act of God, fire, flood, war, labor disturbance or similar calamity
(unless Purchaser has waived the event), and there shall have been no material
adverse changes in the Assets, the Office, or the financial condition of the
Sellers since the execution of this Agreement;
(e) Purchaser has obtained approval of its Senior Lenders
for this transaction; and
(f) Sellers shall have delivered to Purchaser executed
UCC-3 statements for any liens on Sellers' Assets.
19. CONDITIONS PRECEDENT TO THE SELLERS' OBLIGATION TO CLOSE. The
obligation of the Sellers to consummate the transactions contemplated herein at
Closing is, at the option of the Sellers, subject to the following express
conditions precedent:
(a) The representations and warranties of Purchaser
contained in this Agreement were true when made and shall be true in all
material respects at and as of Closing, as though such representations and
warranties had been made at and as of Closing; and
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(b) Purchaser shall have delivered all of the items to be
delivered by it to the Sellers and the Stockholders at Closing pursuant to
Subsection 9 above, and shall not be in default under any other provisions of
this Agreement at or prior to Closing.
20. ADDITIONAL POST-CLOSING RESPONSIBILITIES. The parties shall
comply with the following obligations after the Closing:
(a) At Purchaser's request, without further
consideration, the Sellers and the Stockholders will execute and deliver after
Closing such further instruments of conveyance and transfer and take such other
action as Purchaser may reasonably require for the transfer of the Assets;
(b) At the request of Sellers, without further
consideration, Purchaser will execute and deliver after Closing such further
evidence as the Sellers may reasonably require of Purchaser's assumption of the
Lease and the Assumed Contracts;
(c) For ninety (90) days after the Closing Date at
Purchaser's request, the Sellers and the Stockholders shall assist Purchaser in
every reasonable manner in billing and collection efforts and in maintaining
the business relationships presently enjoyed by the Sellers and the
Stockholders with respect to the Office;
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(d) Except for assisting Professional Staffing Services
initially in the implementation of Spectrum Software, the Sellers and the
Stockholders agree that for a period of three (3) years after the Closing
Date, they will not, directly or indirectly:
(i) own, operate, manage, be employed by, engage
in, provide assistance to, or have a financial interest in any temporary
employment services business, permanent placement business, or similar business
within the county(s) of Cook, DuPage and McHenry , in the State of Illinois
and within the county(s) of Kalamazoo , in the State of Michigan, so long as
Purchaser, or a person or entity deriving title from Purchaser to operate the
Office, continues to operate the Office. For purposes of this provision
"temporary employment services business" includes, but is not limited to,
"employee leasing," "temp-to-hire," and "contract temporary" services;
(ii) solicit employment services business from any
client with whom the Office did business, if such client placed an order with
Sellers within the three (3) year period prior to the Closing Date; or
(iii) for a period of three (3) years employ or
seek to employ any employee of the Office or Purchaser or in any other manner
attempt, directly or indirectly, to influence, induce or encourage any employee
to leave the employment of the Office or Purchaser.
(e) Within fourteen (14) days subsequent to Closing,
Sellers shall provide to Purchaser an affidavit stating that all state and
local taxes due through the Closing Date have been paid. Sellers shall timely
file all federal, state and local tax returns relating to the period through
the Closing Date which
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become due after the Closing Date; shall timely pay all taxes shown by such
returns to be due and payable, together with any interest or penalties which
may be assessed by taxing authorities on any taxes which were not timely paid;
and shall deliver to Purchaser copies of all tax clearance letters and closing
notices received from government authorities which relate to the Office.
(f) (i) Sellers and Brett S. Hardt ("Hardt") hereby
each acknowledges, covenants, agrees and authorizes, that if Hardt breaches or
causes Sellers to breach Subsection 20(d) of this Agreement, Purchaser shall
have the right to withhold payment under the Rolling Meadows Note, the
Kalamazoo Note, the Des Plaines Note and all other amounts otherwise payable by
Purchaser to Sellers and the Stockholders, whether or not evidenced by a note
(collectively, the "Note Amounts"); and upon determination of the amount of any
damages sustained by Purchaser because of such breach of Subsection 20(d),
Purchaser shall have the right to offset and retain such damages against an
aggregate amount, which shall equal fifty percent (50%) of the aggregate amount
of all outstanding principal due and owing under and pursuant to the Note
Amounts.
(ii) Sellers and Jeff Albrecht ("Albrecht") hereby each
acknowledges, covenants, agrees and authorizes, that if Albrecht breaches or
causes Sellers to breach Subsection 20(d) of this Agreement, Purchaser shall
have the right to withhold payment under the Rolling Meadows Note, the
Kalamazoo Note, the Des Plaines Note and all other amounts otherwise payable by
Purchaser to Sellers and the Stockholders, whether or not evidenced by a note
(collectively, the "Note Amounts"); and upon determination of the amount of
any damages sustained by Purchaser because of such breach of Subsection 20(d),
Purchaser shall have the right to offset and retain such damages against an
aggregate amount,
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which shall equal fifty percent (50%) of the aggregate amount of all
outstanding principal due and owing under and pursuant to the Note Amounts.
(iii) Sellers and Stockholders each hereby further
acknowledge, covenant and agree that Purchaser shall retain the above-stated
rights of offset and that Purchaser shall not be in breach of the terms of this
Agreement until resolution of the breach of Subsection 20(d) occurs, whether by
agreement, compromise, settlement or final unappealable judgment.
(iv) The withholding of Note payments to either or both
Stockholders and the establishment of actual damages shall be in addition to
all other rights of Purchaser whether at law or in equity.
21. NOTICES. All notices pursuant to this Agreement shall be sent
in writing to addresses set forth below, unless changed by written notice in
accordance with this Section 21. Any notice sent by telecopy shall be
confirmed by mail.
To Sellers and/or the Stockholders: BRETT HARDT
------------------------------
21839 WEST RIVERIA COURT
------------------------------
IVANHOE, ILLINOIS 60060
------------------------------
JEFF ALBRECHT
------------------------------
412 HILL COURT
------------------------------
WAUCONDA, ILLINOIS 60084
------------------------------
LILA PETROVICH
------------------------------
2152 ABBEYWOOD DRIVE
------------------------------
PALATINE, ILLINOIS 60075
------------------------------
31
<PAGE> 32
To Purchaser: SNELLING AND SNELLING, INC.
------------------------------
12801 N. CENTRAL EXPRESSWAY
------------------------------
SUITE 700
------------------------------
DALLAS, TEXAS 75243
------------------------------
ATTN: RICHARD H. SPRAGINS
------------------------------
Telecopy No.: (214)239-6879
22. TERMINATION. (a) The Sellers or Purchaser may terminate
this Agreement by written notice to the other in the event the transactions
contemplated herein have not closed by November 15, 1996 ; and
(b) This Agreement may also be terminated at any time
prior to the Closing date:
(i) By mutual consent of Purchaser and Sellers;
(ii) By the Purchaser, if any of the conditions of
its obligations hereunder shall not have been satisfied at or prior to the
Closing on the Closing Date and shall not have been waived by it; and
(iii) By the Sellers, if any of the conditions of
its obligations hereunder shall not have been satisfied at or prior to the
Closing on the Closing Date, or if the senior lender approval by this Agreement
shall not have been obtained by Purchaser and the requirements shall not have
been waived by it.
(c) Such notice of termination shall be effective as to
all parties to this Agreement, whether or not they receive notice individually.
If this Agreement is terminated by the Sellers or by
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<PAGE> 33
Purchaser for the reason stated above without consummation of the transactions
contemplated herein, such termination shall be without liability or further
obligation by any party to any other party to this Agreement.
23. GENERAL PROVISIONS. (a) Each party shall bear its
own legal and other costs and expenses in connection with the negotiation,
preparation and execution of this Agreement, and the performance of the
transactions contemplated hereby;
(b) This Agreement and the documents referred to herein
constitute the entire agreement among the parties with respect to the sale and
purchase of the Assets and supersede all previous written or oral negotiations,
commitments, and writing concerning the same subject matter;
(c) This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument;
(d) This Agreement may be amended only in writing and
executed by all of the parties;
(e) This Agreement will inure to the benefit of, and
bind, the respective heirs, personal representatives, successors and permitted
assigns of the parties;
(f) The parties represent that no person is entitled to
any brokerage commission, finder's fee, or any other like payment in connection
with any transaction contemplated by this Agreement, by reason of the action of
any party to this Agreement; and
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<PAGE> 34
(g) This Agreement shall be governed by the laws of the
State of Texas.
24. MEDIATION AND ARBITRATION. THE PARTIES AGREE THAT ANY
AND ALL DISPUTES, CLAIMS OR CONTROVERSIES ARISING OUT OF OR RELATING TO THIS
AGREEMENT SHALL BE SUBMITTED TO J.A.M.S/ENDISPUTE, OR ITS SUCCESSOR, FOR
MEDIATION, AND IF THE MATTER IS NOT RESOLVED THROUGH MEDIATION, THEN IT SHALL
BE SUBMITTED TO J.A.M.S./ENDISPUTE, OR ITS SUCCESSOR, FOR FINAL AND BINDING
ARBITRATION. EITHER PARTY MAY COMMENCE MEDIATION BY PROVIDING TO
J.A.M.S/ENDISPUTE, AND THE OTHER PARTY A WRITTEN REQUEST FOR MEDIATION, SETTING
FORTH THE SUBJECT OF THE DISPUTE AND THE RELIEF REQUESTED. THE PARTIES WILL
COOPERATE WITH J.A.M.S/ENDISPUTE AND WITH ONE ANOTHER IN SELECTING A MEDIATOR
FROM J.A.M.S/ENDISPUTE'S PANEL OF NEUTRALS, AND IN SCHEDULING THE MEDIATION
PROCEEDINGS. THE PARTIES COVENANT THAT THEY WILL PARTICIPATE IN THE MEDIATION
IN GOOD FAITH, AND THAT THEY WILL SHARE EQUALLY IN ITS COSTS. ALL OFFERS,
PROMISES, CONDUCT AND STATEMENTS, WHETHER ORAL OR WRITTEN, MADE IN THE COURSE
OF THE MEDIATION BY ANY OF THE PARTIES, THEIR AGENTS, EMPLOYEES, EXPERTS AND
ATTORNEYS, AND BY THE MEDIATOR OR ANY J.A.M.S/ENDISPUTE EMPLOYEES, ARE
CONFIDENTIAL, PRIVILEGED AND INADMISSIBLE FOR ANY PURPOSE, INCLUDING
IMPEACHMENT, IN ANY ARBITRATION OR OTHER PROCEEDING INVOLVING THE PARTIES,
PROVIDED THAT EVIDENCE THAT IS OTHERWISE ADMISSIBLE OR DISCOVERABLE SHALL NOT
BE RENDERED INADMISSIBLE OR NON-DISCOVERABLE AS A RESULT OF ITS USE IN THE
MEDIATION.
THE PARTIES AGREE THAT ANY AND ALL DISPUTES, CLAIMS OR CONTROVERSIES ARISING
OUT OF OR RELATING TO THIS AGREEMENT THAT ARE NOT RESOLVED BY THEIR MUTUAL
AGREEMENT OR MANDATORY OR REASONABLE MEDIATION SET FORTH ABOVE, SHALL BE
SUBMITTED TO FINAL AND BINDING ARBITRATION BEFORE J.A.M.S/ENDISPUTE, OR ITS
34
<PAGE> 35
SUCCESSOR, PURSUANT TO THE UNITED STATES ARBITRATION ACT, 9 U.S.C. SEC. 1 ET
SEQ. EITHER PARTY MAY COMMENCE THE ARBITRATION PROCESS CALLED FOR IN THIS
AGREEMENT BY FILING A WRITTEN DEMAND FOR ARBITRATION WITH J.A.M.S/ENDISPUTE,
WITH A COPY TO THE OTHER PARTY. THE ARBITRATION WILL BE CONDUCTED IN
ACCORDANCE WITH THE PROVISION OF J.A.M.S/ENDISPUTE'S COMPREHENSIVE ARBITRATION
RULES AND PROCEDURES IN EFFECT AT THE TIME OF FILING OF THE DEMAND FOR
ARBITRATION. THE PARTIES WILL COOPERATE WITH J.A.M.S/ENDISPUTE AND WITH ONE
ANOTHER IN SELECTING AN ARBITRATOR FROM J.A.M.S/ENDISPUTE'S PANEL OF NEUTRALS,
AND IN SCHEDULING THE ARBITRATION PROCEEDINGS. THE PARTIES COVENANT THAT THEY
WILL PARTICIPATE IN THE ARBITRATION IN GOOD FAITH, AND THAT THEY WILL SHARE
EQUALLY IN ITS COSTS. THE PROVISIONS OF THIS PARAGRAPH MAY BE ENFORCED BY ANY
COURT OF COMPETENT JURISDICTION, AND THE PARTY SEEKING ENFORCEMENT SHALL BE
ENTITLED TO AN AWARD OF ALL COSTS, FEES AND EXPENSES, INCLUDING ATTORNEYS FEES,
TO BE PAID BY THE PARTY AGAINST WHOM ENFORCEMENT IS ORDERED.
25. CONFIDENTIALITY. Neither Purchaser nor Sellers, nor
any of their respective Stockholders, affiliates, Officers, employees, agents
or representatives shall: (a) make any press releases or any published
statement concerning the transactions contemplated herein without the prior
written consent of all of the parties hereto, which consent shall not be
withheld where such press releases or statement is required by applicable law;
or (b) disclose the terms or existence of this Agreement to any person or
entity, other than to their respective attorneys and other representatives, and
to those parties such as bankers and lessors with whom they must communicate in
order to consummate the proposed transactions. Purchaser and Sellers shall be
permitted to discuss the transactions contemplated herein with their respective
suppliers
35
<PAGE> 36
and vendors, provided that they instruct such suppliers and vendors to keep all
such communications confidential.
26. BULK TRANSFER LAWS. The parties waive compliance with
the requirements of the bulk transfer or bulk sales law of any jurisdiction in
connection with the sale of the Assets to Purchaser under this Agreement.
Sellers shall indemnify and hold Purchaser harmless against any and all losses
incurred by Purchaser as a result of noncompliance with any such laws.
27. RELEASE BY SELLERS AND STOCKHOLDERS. The Sellers and
each Stockholder, for themselves and on behalf of their officers, directors,
employees, successors, representatives, and agents, do hereby irrevocably and
unconditionally release, acquit, and forever discharge (the "Release")
Purchaser, its officers, directors, stockholders, employees, successors,
representatives, and agents from any and all claims, debts, damages, demands,
liabilities, suits in equity, complaints, grievances, obligations, promises,
agreements, rights, controversies, consents, losses, damages, attorneys' fees
and expenses, punitive damages and other compensation, suits, appeals, actions,
and causes of actions, of whatever kind of character, whether heretofore or
hereafter accruing, whether known or unknown, suspected or unsuspected,
specified or unspecified, fixed or contingent, liquidated or unliquidated, for
or because of any matter or thing done, omitted, or suffered to be done by,
Purchaser, its officers, directors, stockholders, employees, successors,
representatives, and agents, for any incidents, including those past and
present, which may have existed prior to, or contemporaneously with, the
execution of this Agreement, or subsequent to the execution of this Agreement
if arising out of conduct occurring before the execution of this Agreement.
The Sellers and each
36
<PAGE> 37
Stockholder hereby represent that nothing which is released hereunder has been
transferred, assigned, or given away prior to the date hereof to any person,
firm, or entity.
(a) It is the intention of the Sellers and each Stockholder in
executing this Agreement that the Release shall be effective as a bar to each
and every claim, demand, and cause of action hereinabove specified, and the
Sellers and each Stockholder hereby knowingly and voluntarily waive any and all
rights and benefits. The Sellers and each Stockholder expressly consent that,
this release shall be given full force and effect according to each and all of
its express terms and provisions, including those relating to unknown and
unspecified claims, demands, and causes of action. The Sellers and each
Stockholder acknowledge and agree that this waiver is an essential and material
term of the Release of this Agreement and without the waiver of transaction
contemplated by this Agreement would not be consummated.
28. RELEASE BY PURCHASER. The Purchaser, for itself and on
behalf of their officers, directors, employees, successors, representatives,
and agents, do hereby irrevocably and unconditionally release, acquit, and
forever discharge (the "Release") the Sellers and Stockholders, its officers,
directors, employees, successors, representatives, and agents from any and all
claims, debts, damages, demands, liabilities, suits in equity, complaints,
grievances, obligations, promises, agreements, rights, controversies, consents,
losses, damages, attorneys' fees and expenses, punitive damages and other
compensation, suits, appeals, actions, and causes of actions, of whatever kind
of character, whether heretofore or hereafter accruing, whether known or
unknown, suspected or unsuspected, specified or unspecified, fixed or
contingent, liquidated or unliquidated, for or because of any matter or thing
done, omitted, or suffered to be done by, the Sellers and
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<PAGE> 38
Stockholders, its officers, directors, employees, successors, representatives,
and agents, for any incidents, including those past and present, which may have
existed prior to, or contemporaneously with, the execution of this Agreement,
or subsequent to the execution of this Agreement if arising out of conduct
occurring before the execution of this Agreement. The Purchaser hereby
represents that nothing which is released hereunder has been transferred,
assigned, or given away prior to the date hereof to any person, firm, or
entity.
(a) It is the intention of the Purchaser in executing this
Agreement that the Release shall be effective as a bar to each and every claim,
demand, and cause of action hereinabove specified, and the Purchaser hereby
knowingly and voluntarily waives any and all rights and benefits. The
Purchaser expressly consents that, this release shall be given full force and
effect according to each and all of its express terms and provisions, including
those relating to unknown and unspecified claims, demands, and causes of
action. The Purchaser acknowledges and agrees that this waiver is an essential
and material term of the Release of this Agreement and without the waiver of
transaction contemplated by this Agreement would not be consummated.
29. SURVIVAL OF REPRESENTATIONS. ALL representations, warranties and
agreements made by the parties hereto, shall survive Closing.
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<PAGE> 39
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
under seal of the date first written above.
PAR FIVE SERVICES, INC. STOCKHOLDERS:
By: /s/ BRETT S. HARDT By: /s/ BRETT S. HARDT
------------------------- ------------------------------
Brett S. Hardt Brett S. Hardt
President
By: /s/ JEFF ALBRECHT
------------------------------
Jeff Albrecht
By: /s/ LILA PETROVICH
------------------------------
Lila Petrovich
SNELLING AND SNELLING, INC.
By: /s/ RICHARD H. SPRAGINS
-------------------------
Richard H. Spragins
Senior Vice President
<PAGE> 1
EXHIBIT 10.26
ASSET PURCHASE AGREEMENT
between
Cross Temps, Inc. and Cross Personnel Agency, Inc.
(the "Sellers")
and
James A. Zamparelli, Maria Zamparelli, Michael Monda, and John Costa
(the "Primary Stockholders")
and
SNELLING AND SNELLING, INC.
(the "Purchaser")
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S><C> <C>
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. Sale and Transfer of Certain Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3. Assumption of Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4. Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5. Allocation of Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6. Allocations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7. Collection of Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
8. Closing Deliveries by the Sellers and the Primary Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . 6
9. Closing Deliveries by Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
10. Representations and Warranties of the Sellers and the Primary Stockholders . . . . . . . . . . . . . . . . . . . . 8
11. Covenants of the Sellers and the Primary Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
12. Representations and Warranties of Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
13. Covenants of Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
14. Indemnity by the Sellers and the Primary Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
15. Indemnity by Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
16. Loss or Destruction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
17. Conditions Precedent to Purchaser's Obligation to Close . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
18. Conditions Precedent to the Sellers' Obligation to Close . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
19. Additional Post-Closing Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
20. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
21. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
22. General Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
23. Mediation and Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
24. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
25. Bulk Transfer Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
26. Survival of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
-ii-
<PAGE> 4
SCHEDULES
<TABLE>
<S> <C> <C>
Schedule 1 - Tangible Assets
Schedule 2 - Assumed Contracts
Schedule 3 - Promissory Note
Schedule 4 - Allocation of Purchase Price
Schedule 5 - Subordination Agreement
Schedule 6 - Employment Agreements
Schedule 7 - Trademarks and Service Marks
Schedule 8 - Encumbrances
Schedule 9 - Exceptions to Generally Accepted Accounting Principles
Schedule 10 - Proceedings
Schedule 11 - Employees
Schedule 12 - Employee Grievances, Etc.
Schedule 13 - Employee Benefit Plans
</TABLE>
-iii-
<PAGE> 5
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is entered into
effective as of this _____ day of September, 1997, by and among Cross Temps,
Inc., a New York corporation, and Cross Personnel Agency, Inc., a New York
corporation (the "Sellers"), and James A. Zamparelli, Maria Zamparelli, Michael
Monda, and John Costa ( the "Primary Stockholders"), on one hand and SNELLING
AND SNELLING, INC. ("Purchaser"), a Pennsylvania corporation, on the other
hand.
RECITALS
WHEREAS, Sellers are operating two (2) personnel service businesses
(the "Offices") which are located as follows:
150 Broadway, Suites 901, 902, 904 and 915 New York, New York 10038.
WHEREAS, Primary Stockholders collectively own over 51% of the issued
and outstanding common stock of Sellers;
WHEREAS, Sellers desire to sell, transfer, convey and assign to
Purchaser, and Purchaser desires to purchase, under the terms and conditions
set forth herein, all of the Assets of Sellers associated with the Offices,
except those specifically listed below, including the trademarks, service
marks, and trade names and the good will associated with the Offices; and
WHEREAS, Purchaser also desires to obtain assignments of certain
contracts and agreements relating to the operation of Sellers' Offices and
agrees to assume certain of Sellers' obligations and certain continuing
liabilities as described herein.
NOW, THEREFORE, FOR AND IN CONSIDERATION of the mutual promises
contained herein, the parties agree as follows:
-1-
<PAGE> 6
1. DEFINITIONS. The following words shall have the following
meanings when used in this Agreement:
(a) "Assets" shall mean all of the rights, title and
interest of Sellers in the assets, properties, rights, claims and contracts of
every kind, character and description, whether real or personal, tangible or
intangible, including without limitation the trade name "Cross" and all
variations thereof, to the extent owned by Sellers, which are used or usable
in, or relate to, the operation of the Offices, without regard to whether
reflected on the Sellers' financial statements or books, except those Assets
listed below which shall be retained by Sellers:
Seller's accounts receivable due Sellers prior to the Closing
Date. All work performed by temporary employees up to the Closing Date will
generate accounts receivable owned by the Sellers, regardless of when billed.
With respect to the placement of permanent employees, if the applicant has
become an employee of the client prior to the Closing Date, the receipts
generated by the placement belong to the Sellers, regardless of the date of the
invoice;
Seller's cash and cash equivalents (except for any cash or
cash equivalents which arise for services rendered on or after the Closing Date
or which otherwise relate to periods following the Closing Date);
Prepaid and unexpired insurance;
Loans and exchanges receivable; and
Lease security deposits, and other deposits.
(b) "Closing" shall mean the events which take place for
the purpose of consummating the transactions contemplated by this Agreement,
commencing at 9:00 a.m. on Monday, October 6, 1997, at the law offices of
Goldberg, Corwin & Greenberg, 311 Madison Avenue, 15th
-2-
<PAGE> 7
Floor, New York, New York 10017, or at another acceptable time and location to
which the parties agree; and
(c) "Closing Date" shall mean the date on which the
Closing actually occurs.
2. SALE AND TRANSFER OF CERTAIN ASSETS. Upon the terms and
subject to the conditions set forth in this Agreement, the Sellers agree to
sell, transfer, assign, grant, and convey the Assets to Purchaser on the
Closing Date, including without limitation the tangible assets listed on
Schedule 1, free and clear of all mortgages, liens, security interests,
pledges, charges and other encumbrances, except in respect of those certain
tangible assets which are the subject of equipment leases which are noted and
listed on Schedule 1.
3. ASSUMPTION OF LIABILITIES. Purchaser has not assumed, and
shall not assume, any liability or obligation of any nature, known or unknown,
existing or contingent, of the Sellers, except that, at Closing, Purchaser
shall assume: (i) the leases of real property relating to the Offices (the
"Leases"); and (ii) the other written contracts and obligations specifically
identified in Schedule 2 to this Agreement (the "Assumed Contracts").
Purchaser will assume contractual obligations only to the extent such
obligations accrue on or after the Closing Date. Sellers shall assume and make
payments for the obligations for unused vacation and unused sick leave, if any,
accrued prior to the Closing Date by each employee of the Sellers. Without
limiting the foregoing, the Sellers acknowledge that Purchaser does not assume
any obligation in connection with any actual or alleged breach or default of
the Leases or Assumed Contracts occurring at any time prior to the Closing
Date. Except for the items specified in clauses (i) and (ii) above, all
obligations, liens, encumbrances, and liabilities of the Sellers shall continue
to be the sole responsibility of the Sellers and Sellers shall hold Purchaser
harmless with respect thereto.
4. PURCHASE PRICE. In reliance upon the representations and
warranties made with respect to the Assets and for the purchase of the Assets
named herein, Purchaser shall pay the Sellers Six Million
-3-
<PAGE> 8
Dollars and 00/100 ($6,000,000.00) (the "Purchase Price") as provided in
Subsections 4(a) and 4(b) below. The Purchase Price shall be paid as follows:
(a) At Closing, Purchaser shall pay the Sellers Four
Million Five Hundred Thousand Dollars ($4,500,000.00) in cash by certified
check or by wire transfer to Sellers' account; Purchaser shall make payment or
payments in accordance with Seller's instructions if the instructions are given
to Purchaser in writing three (3) days prior to Closing Date and such
instructions comply with all laws; and
(b) At Closing, Purchaser shall deliver to Sellers a
subordinated promissory note (the "Note") in the amount of One Million Five
Hundred Thousand Dollars and 00/100 ($1,500,000.00), substantially in the form
of Schedule 3 (the "Promissory Note").
5. ALLOCATION OF PURCHASE PRICE. In accordance with Section 1060
of the Internal Revenue Code of 1986, as amended, the Purchase Price shall be
allocated in the manner set forth in Schedule 4 to this Agreement. The
Sellers, the Primary Stockholders, and Purchaser each covenant and warrant to
each other that: (i) in no tax return filed by the parties or any of their
respective successors or assigns shall the allocation of the Purchase Price be
treated or reported inconsistently with or differently from the allocation of
the Purchase Price set forth in Schedule 4, unless such change in allocation is
the result of a determination by a governing authority for that year or a
preceding year; and (ii) in no tax audit, tax examination, tax or compliance
review or tax litigation will the parties or any of their respective successors
or assigns claim or assert that the allocation of the Purchase Price is or
should be inconsistent with or different from that set forth in Schedule 4,
unless as a result of a determination made by a governing authority in a
preceding year. The parties agree to file all appropriate Internal Revenue
Service forms with their respective Federal income tax returns for their
respective tax year.
6. ALLOCATIONS. The businesses of the Offices shall be operated
for the account of Purchaser from and following the Closing Date. All real
estate taxes, personal property taxes, rents, telephone
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<PAGE> 9
charges, utilities, promotional items on hand as of the Closing Date (at cost)
which Purchaser desires to continue to use, and other costs and expenses of
owning or operating the Assets or the business of the Sellers (the "Prorated
Costs"), and all revenues associated with owning or operating the Assets and
the business of the Sellers(the "Prorated Revenues"), shall be prorated on a
per diem basis as of the Closing Date, with the Sellers responsible for the
portion of all such Prorated Costs and entitled to all such Prorated Revenues
which relate to the period from and after the Closing, and Purchaser
responsible for the portion of all such Prorated Costs and entitled to all such
Prorated Revenues which relate to the period from and after the Closing Date.
Prorated Costs and Prorated Revenues and reimbursement of security deposits
that are identified on Schedule 2 shall be settled between Purchaser and
Sellers either at Closing or as soon as practicable thereafter but no later
than thirty (30) days after the Closing Date. Any sales tax, use tax, excise
tax, transfer tax, recording fee or other tax or fee imposed on the transfer of
the Assets from Sellers to Purchaser shall be paid by Sellers.
7. COLLECTION OF ACCOUNTS RECEIVABLE. With respect to the
accounts receivable, Sellers shall provide at Closing or immediately
thereafter, a list of accounts receivable due Sellers prior to the Closing
Date. For ninety (90) days subsequent to the Closing, Purchaser shall be
responsible for the collection of such accounts receivable and shall provide
Sellers a weekly report accompanied by all monies due Sellers. Additionally,
Purchaser shall make available, at no cost to Seller, all records relating to
the accounts receivable to be collected by Purchaser in whatever manner
requested and available. Moneys collected shall be applied to the invoice
identified by the client. If the proper invoice is not readily identifiable,
the client will be contacted and identify where the payment is to be applied.
Purchaser shall return to Sellers at the end of the ninety (90) day period all
uncollected accounts receivable for further collection efforts by Sellers.
Purchaser shall incur no liability to Sellers for the uncollectibility of said
accounts receivable and Purchaser is not required to institute or threaten
litigation
-5-
<PAGE> 10
to collect such receivables. No fee shall be paid to Purchaser for Purchaser's
collection of Sellers' accounts receivable. With respect to guarantees given
clients by Sellers, Purchaser shall make refunds to clients on Sellers' behalf
and notify Sellers of amounts paid by Purchaser. Sellers shall make
reimbursement payment to Purchaser for amounts of refunds paid to clients, or
if payment is not made in a reasonable time, Purchaser shall deduct such
amounts from accounts receivable collections due to Seller.
8. CLOSING DELIVERIES BY THE SELLERS. The Sellers and the
Primary Stockholders agree to execute and deliver at Closing, or cause to be
executed and delivered at Closing (but effective as of the Closing Date), the
following:
(a) Such instruments of transfer, assignment and
conveyance as shall be necessary or desirable to vest in Purchaser good and
marketable title to the Assets free and clear of all mortgages, liens, security
interests, pledges, charges and other encumbrances. Such instruments of
transfer shall include:
(i) A Bill of Sale from the Sellers, in the form
furnished to the Sellers by the Purchaser;
(ii) The written consents of the lessor to the
assignment and assumption of the Leases (which consents shall include customary
language from the landlord that the Sellers are not in default on the Leases);
(iii) To the extent possible, written consents of
third parties under the Assumed Contracts to the assignment and assumption of
the Assumed Contracts;
(iv) Form UCC-3 termination statements, signed by
the creditors, to cancel any financing statements disclosed in Schedule 8 to
this Agreement (other than financing statements filed in connection with
Assumed Contracts);
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(v) Unanimous written consents, signed by all the
stockholders of the Sellers, in a form consistent with the Sellers' bylaws and
state law, approving the transactions contemplated hereunder; and
(vi) The written consents of any other persons
whose approval or consent to the execution, delivery, and performance of this
Agreement by the Sellers is legally or contractually required.
(b) The originals of the Leases, and the written Assumed
Contracts;
(c) Certificates signed by the respective presidents and
secretaries of Sellers to the effect that all representations and warranties of
Sellers contained in this Agreement are true at and as of Closing, that Sellers
have performed all matters on its part required to be performed hereunder, and
that Sellers are not in default under any of the provisions of this Agreement;
(d) A letter to the telephone company servicing Sellers
requesting transfer to Purchaser of all of the telephone numbers (including
numbers for facsimile machines and modems) and listings applicable to the
Offices;
(e) List of accounts receivable prior to the Closing Date
or as provided in Section 7;
(f) Any domain names or addresses Sellers have for use on
the Internet;
(g) A Subordination Agreement in substantially the form
attached as Schedule 5, duly executed by Sellers;
(h) Sellers shall submit to Purchaser such other
instruments, documents or affidavits, in form and substance reasonably
acceptable to Purchaser, as may be necessary to effect the Closing and Sellers
shall cooperate with Purchaser in the execution of such documents; and
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(i) James A. Zamparelli, Maria Zamparelli, Michael Monda
and John Costa shall execute and deliver employment agreements in the forms of
Schedules 6-A, 6-B, 6-C and 6-D, respectively.
9. CLOSING DELIVERIES BY PURCHASER. In addition to delivery of
the amount required under Subsection 4(a) above, Purchaser agrees to execute
and deliver at the Closing, or cause to be executed and delivered at Closing:
(a) The Promissory Note in accordance with Subsection
4(b) and in the form shown on Schedule 3;
(b) The employment agreements in the forms of Schedules
6-A, 6-B, 6-C, and 6-D;
(c) Such instruments as shall be necessary or desirable
in the reasonable judgment of the Sellers to effect the assumption by Purchaser
of the Leases and the Assumed Contracts; and
(d) Certified copy of resolutions duly adopted by the
Board of Directors of Purchaser authorizing the execution and delivery of this
Agreement, the Promissory Note and consummation of transactions described
herein, which shall be in full force and effect at the time of delivery.
10. REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE PRIMARY
STOCKHOLDERS. The Sellers and the Primary Stockholders, jointly and severally,
represent and warrant as follows:
(a) The Sellers each have been duly organized and are
validly existing and in good standing under the laws of the State of New York.
Sellers are qualified to do business as a foreign corporation in all
jurisdictions in which the nature of the business so requires;
(b) The execution, delivery, and performance of this
Agreement have been duly authorized by the Boards of Directors of the Sellers,
and all necessary stockholder actions under the Sellers' charters, bylaws and
New York laws have been taken for approval of the execution and delivery
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of this Agreement by the Sellers, their performance of the terms of this
Agreement, and the consummation of the transactions contemplated hereunder;
(c) The execution and delivery of this Agreement, the
Sellers' or Primary Stockholders' performance hereunder, and the consummation
of the transactions herein contemplated, do not, and to the best of the
Sellers' and Primary Stockholders' knowledge will not immediately or with the
passage of time, the giving of notice or otherwise, result in the breach of,
constitute a default or violation under, or accelerate any obligation under any
agreement or other instruments to which either the Sellers or the Primary
Stockholders are a party, or may be bound, other than the Office Leases;
(d) Set forth on Schedule 7 are all trade names,
trademarks, service marks, and Internet domain names used or available for use
by Sellers. To the best of the knowledge of Sellers and the Primary
Stockholders, the Sellers have good title and right to the use of all trade
names, trademarks or service marks used or available for use by Sellers, and
neither the Sellers nor the Primary Stockholders have notice of any claim
concerning a violation of or infringement upon the rights of any third party
with respect to the use of any trade name, trademark, service mark, copyright
or patent. Neither the Sellers nor the Primary Stockholders have any knowledge
of any violation of or infringement by any other person or entity upon the
rights of Sellers with respect to the use of any trade name, trademark, service
mark, copyright or patent. Sellers have neither licensed any of its
intellectual property rights to any other party nor to the best of Sellers'
knowledge has or are Sellers infringing any intellectual property rights of any
other party;
(e) This Agreement and the other agreements and
transactions contemplated herein to which the Sellers or the Primary
Stockholders are or will be a party will each, upon execution and delivery, be
a legal, valid, and binding obligation of the Sellers and the Primary
Stockholders,
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enforceable in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally;
(f) Except as disclosed in Schedule 8 and Schedule 2 (in
connection with equipment leases), the Sellers have good and marketable title
to the Assets free and clear of all mortgages, liens, security interests,
pledges, charges, obligations and other encumbrances. All mortgages, liens,
security interests, pledges, charges, obligations and other encumbrances
disclosed on Schedule 8 and Schedule 2 on the Assets will be released prior to
or at the Closing;
(g) The Sellers have previously delivered to Purchaser
the Sellers' financial statements for Cross Temps, Inc. only covering the three
(3) years preceding the current year and the interim balance sheets and income
statements of the Sellers for the period from March 31, 1997 through and
including June 30, 1997 (collectively, the "Financial Statements") and the
federal income tax returns for the three (3) years preceding the current year,
each having been compiled by Herbert L. Koizim, C.P.A. The Sellers represent
and warrant that (1) the Financial Statements reflect or provide for all
material claims against, and all material debts and liabilities relating to,
the Offices, fixed or contingent, as of the dates of the Financial Statements,
and (2) there has not been any change since the date of the last year-end
balance sheets which materially and adversely affected the Offices or the
Assets or the financial condition or results of the operation of the Sellers.
Sellers' Financial Statements reflect the financial position and results of
operations of the Sellers' business as of the dates, and for the periods,
indicated;
(h) The Sellers have filed all federal, state, and local
tax returns including but not limited to income, sales, and payroll which were
required to be filed prior to the Closing Date, and have paid all required
federal, state and local taxes shown thereon, and have paid the required state
disability
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insurance payments. There have been no audits with respect to any taxes of
Sellers that raised issues that remain unresolved.
(i) The Sellers have all requisite power and all
necessary permits, certificates, contracts, approvals and other authorizations
required by federal, state, city, county or other municipal bodies to own,
lease, and use the Assets and to operate the Offices in the manner in which
they are presently operated;
(j) In connection with the operation of the Offices and
ownership and use of the Assets, to the best of the knowledge of Sellers and
the Primary Stockholders, there are not now and have not been any failures to
comply with any applicable local, state or federal laws, regulations,
ordinances or administrative or judicial orders, and no allegations have been
made of any such failure and, without limiting the foregoing, Sellers are in
compliance with all laws regarding verification of status of employees as U.S.
citizens or aliens with authority to work in the U.S.;
(k) Except as disclosed on Schedule 10, Sellers are not
subject to any injunction, decree or similar order of any court or governmental
authority; any pending or, to the best of the Sellers' and the Primary
Stockholders' knowledge, threatened action, suit, proceeding, inquiry or
investigation at law or in equity; or any proceeding before any court,
arbitrator, public board or body. None of the items disclosed on Schedule 10
will in any way prevent the carrying out of this Agreement or any of the
transactions contemplated hereunder, declare unlawful any such transactions,
cause such transactions to be rescinded, or have a material adverse effect on
the Offices or the financial condition of the Sellers.
(l) Except for the Leases and the Assumed Contracts
disclosed, to the best of the knowledge of Sellers and the Primary
Stockholders, there are no agreements, lease(s), contracts, charges,
encumbrances or restrictions which may restrict Purchaser's use or right to use
any of the Assets or which create obligations for which Purchaser could be
liable;
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(m) The Sellers have maintained insurance, including but
not limited to, liability insurance for any claims which may have arisen or
cause of action which may have occurred during Sellers' ownership and/or
operation of the Assets and the Offices. Such insurance is of the "occurrence"
type, so that if the policies are discontinued by the Sellers after the Closing
Date, insurance coverage will nevertheless continue (subject to the terms and
conditions of such policies) with respect to such claims and causes of action;
(n) Neither this Agreement nor any Exhibit, Schedule, or
attachment hereto, nor any certificate or other information or document
furnished by or on behalf of the Sellers or the Primary Stockholders knowingly
contains any untrue statement of a material fact, or knowingly omits to state a
material fact necessary in order to make the statements contained herein or
therein not misleading;
(o) Schedule 11 to this Agreement is a list of all staff
employees currently employed by the Sellers and a list of all written
employment, consulting or similar agreements, with a copy of each. Schedule 11
accurately and completely shows the listed employees' current rates of
compensation. Sellers have no employment agreements with any of its employees
which Purchaser will be required to assume and have no oral or written
understandings with any of its employees which relate to terms or conditions of
such employee's employment which Purchaser will be required to assume;
(p) Schedule 12 is a listing of all pending employee
grievances and all complaints before the NLRB, EEOC or other relevant bodies;
(q) There are no collective bargaining agreements in
effect with respect to any employees of the Sellers, and the Sellers and
Primary Stockholders are not aware of any union organizational activity;
(r) All of the Leases and the Assumed Contracts that are
to be assumed by Purchaser are enforceable against the other parties thereto.
The Sellers are not in breach under any of the Leases
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and Assumed Contracts that are to be assumed by Purchaser and, to the Sellers'
and Primary Stockholders' knowledge, no other party to any such contracts that
are to be assumed by Purchaser is in breach thereunder;
(s) Schedule 13 is a listing of all pension plans, profit
sharing plans or other employee benefit plans (as that term is defined in the
federal law commonly known as the Employees' Retirement Income Security Act, as
amended) maintained by or on behalf of Sellers. Sellers acknowledge that
Purchaser will not assume any liability or obligation with respect to any such
plan;
(t) The Assets being conveyed to Purchaser constitute,
except as otherwise expressly provided in a disclosure schedule, all Assets
used by the Sellers in the conduct of the business being acquired;
(u) Since the date of the Sellers' most recent year end
balance sheet, the Sellers have not, except as expressly disclosed in a
disclosure schedule, taken any actions or failed to take any actions that would
have violated the pre-Closing covenants set forth in Subsections 11(c), 11(j),
11(k), 11(l), 11(m), 11(n), 11(o), 11(p), and 11(q) of this Agreement if such
agreement were in effect as of the time such actions were taken or the time
Sellers failed to take such action;
(v) To the best of the knowledge of Sellers and the
Primary Stockholders, Sellers have not violated any laws or regulations enacted
or promulgated for the purpose of protecting the environment or health and
safety. No pollutants, contaminants, or other hazardous or noxious substances
are or have been generated in the course of the Sellers' business; and
(w) Each of the Primary Stockholders is an active
employee, officer and stockholder of at least one of the Sellers.
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11. COVENANTS OF THE SELLERS AND THE PRIMARY STOCKHOLDERS. The
Sellers and the Primary Stockholders covenant that, between the date of this
Agreement and the Closing, they will (except as otherwise agreed in writing by
Purchaser):
(a) Carry on the business of the Offices in the ordinary
course;
(b) Give Purchaser and its attorneys, auditors and other
representatives full access during normal business hours to the Offices and to
the properties, books, contracts, commitments and records pertaining to the
Offices, and otherwise provide full cooperation to enable Purchaser and its
representatives to conduct such audits of Sellers' businesses and records as
Purchaser may request;
(c) Provide Purchaser with access to such information
concerning the affairs of the Offices as Purchaser may reasonably request,
including authorizing the Sellers' auditors, attorneys and other
representatives to cooperate with Purchaser's auditors and attorneys and other
representatives and authorizing the Sellers' auditors to give Purchaser's
auditors full access to their files and working papers with respect to the
Offices;
(d) Do all reasonable things and cause all reasonable
things to be done to ensure that the warranties and representations of the
Sellers and the Primary Stockholders contained in this Agreement remain true
and correct throughout the period until Closing, as if such representations and
warranties were continuously made throughout such period;
(e) Not enter into any new contracts, commitments or
transactions pertaining to the Offices, which contract, commitment or
transaction is not terminable by Sellers (or Purchaser following the Closing)
without penalty upon 30 days' (or less) notice;
(f) Not sell, agree to sell, or otherwise dispose of any
of the tangible assets (other than supplies used or sold in the ordinary course
of business), without the prior written consent of Purchaser;
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(g) Use best efforts to obtain the release of all
mortgages, liens, security interests, pledges, charges, obligations, and other
encumbrances set forth in Schedule 8;
(h) Use their best efforts to obtain all required third
party consents (provided that neither Sellers nor the Primary Stockholders
shall be required to make any payments not specified in the Leases in order to
obtain the consent of the landlord under the Leases to the assignment of such
Leases to Purchaser) and to otherwise satisfy all Closing conditions;
(i) Not create or assume any new pledge, lien, or
encumbrance with respect to the Assets;
(j) Maintain the Assets in as good repair, order, and
condition as they were in as of the date of this Agreement, reasonable wear and
use and damage by fire, acts of nature, or other casualty excepted;
(k) Not incur any indebtedness, obligations, or liability
with respect to the Offices or Assets or make any payment in respect thereof,
except in the ordinary course of business;
(l) Pay, satisfy, and discharge the current obligations
and liabilities of the Offices in the ordinary course of business;
(m) File all federal, state, and local tax returns which
become due prior to the Closing, and pay all taxes shown by those returns to be
due and payable, together with any interest or penalties which may be assessed
by taxing authorities on any taxes which were not timely paid;
(n) Maintain or cause to be maintained in full force and
effect all of the fire and other insurance on property and all of the
liability and other casualty insurance (including any bonds on personnel) that
was in effect with respect to the Offices as of the date of this Agreement;
(o) Use reasonable efforts to preserve intact the
Sellers' business organization and the goodwill of Sellers' clients and
suppliers;
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(p) Conduct advertising and promotion for the Offices
consistent with the amount and type of such advertising and promotion conducted
during the twelve months prior to the date of this Agreement;
(q) Maintain the books of account and records of the
Offices in the usual manner;
(r) Promptly, at Purchaser's request, join and cooperate
in any application which Purchaser may make in order to ensure the timely
transfer of any licenses, permits, or certificates to Purchaser at Closing;
(s) Promptly advise Purchaser in writing of any material
adverse change with respect to the Offices, the Assets, or the financial
condition of the Sellers;
(t) Deliver to Purchaser prompt written notice of any
event or condition known to either the Sellers or to the Primary Stockholders
which, if it had existed on the date of execution of this Agreement, would have
constituted a breach of any of their representations and warranties under this
Agreement;
(u) Not increase compensation to staff employees, or
modify staff employee benefits;
(v) Not enter into or modify any contracts with Sellers',
the stockholders or other affiliates;
(w) Allow a representative of Purchaser to observe all
the activities and transactions of the Offices for a period of not less than
one (1) week prior to the Closing Date. Sellers will cooperate fully with
Purchaser's representative; and
(x) Provide Purchaser with copies of insurance policies
conforming to Subsection 10(m).
12. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser
represents and warrants as follows:
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(a) Purchaser has been duly organized and is validly
existing and in good standing under the laws of the Commonwealth of
Pennsylvania;
(b) The execution, delivery and performance of this
Agreement and the Promissory Note have been duly authorized by the Board of
Directors of Purchaser, and Purchaser has the complete and unrestricted power
and authority to, and has taken all corporate action necessary to enter into,
execute and deliver this Agreement and the Promissory Note and to perform all
of its obligations hereunder and to consummate all transactions contemplated
herein;
(c) This Agreement and the Promissory Note and the other
agreements and transactions contemplated herein to which Purchaser is or will
be a party will each, upon execution and delivery, be a legal, valid and
binding obligation of Purchaser enforceable in accordance with its terms,
except as may be limited by bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' rights generally. This Agreement does not
conflict with any other agreement affecting Purchaser;
(d) Neither this Agreement nor any Exhibit, Schedule, or
attachment hereto, nor any certificate or other information or document
furnished by or on behalf of the Purchaser knowingly contains any untrue
statement of a material fact, or knowingly omits to state a material fact
necessary in order to make the statements contained herein or therein not
misleading; and
(e) Payments due under the Promissory Note will not
violate the Agreement between Purchaser and its lenders, led by BankBoston,
N.A., formerly known as the First Bank of Boston.
13. COVENANTS OF PURCHASER. Purchaser covenants that, between
the date of this Agreement and the Closing:
(a) Purchaser will offer to hire (on an "at will" basis)
the employees of the Sellers listed on Schedule 11, subject to Purchaser's
ordinary pre-employment and post-employment standards
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and conditions, at rates of pay and with benefits consistent with those of
similarly-situated employees of Purchaser. Purchaser shall have no obligation
to offer employment to any specific individual listed in Schedule 11 who does
not meet Purchaser's ordinary standards and conditions, or to offer any
individual on Schedule 11 pay or benefits comparable to those identified in
such Schedule. Purchaser assumes no liability for wages or other benefits
(including but not limited to bonuses, vacations, sick leave, retirement and
medical benefits) accrued by any person listed on Schedule 11 during such
persons' employment by the Sellers. For purposes of eligibility and vesting
under any of Purchaser's benefit plans that are applicable to employees listed
on Schedule 11 who are employed at the Closing Date by Sellers (but not for
purposes of benefit accrual), Purchaser shall recognize periods of service of
such employees prior to the Closing with Sellers.
(b) Promptly, at Sellers' request, join and cooperate
with Seller in obtaining necessary consents and approvals to the assignment of
the Leases and the Assumed Contracts and any other rights which are to be
assumed by Purchaser in accordance with this Agreement;
(c) Purchaser shall make applications to such
governmental authorities and agencies as Purchaser deems appropriate to ensure
that licenses, permits, and certificates held by the Sellers are transferred to
Purchaser as of the Closing, and at the request of the Sellers shall join and
cooperate in any such application which the Sellers may make; and
(d) Purchaser shall do all reasonable things and cause
all reasonable things to be done to ensure that the warranties and
representations of Purchaser contained in this Agreement remain true and
correct throughout the period until Closing, as if such representations and
warranties were continuously made throughout such period.
14. INDEMNITY BY THE SELLERS AND THE PRIMARY STOCKHOLDERS.
Without limiting any of their other obligations under this Agreement, the
Sellers and the Primary Stockholders, jointly and severally,
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agree to indemnify and hold harmless Purchaser and its affiliates, officers,
directors, stockholders and employees against and from any loss, liability,
damages, cost or expense incurred by them (including, but not limited to,
reasonable attorneys' and accounting fees and expenses) based upon, arising out
of, or relating to: (i) any materially inaccurate, untruthful or erroneous
representation or warranty of the Sellers or the Primary Stockholders set forth
in this Agreement or any certificate or document delivered pursuant to this
Agreement (provided that if any such representation or warranty already
contains a materiality standard then the materiality standard in this section
shall not apply); (ii) any material failure to perform any of the covenants,
conditions or agreements of the Sellers or the Primary Stockholders set forth
in this Agreement or with respect to any transaction contemplated in this
Agreement; (iii) the ownership or operation of the Offices through the Closing
Date; (iv) any liabilities of Sellers (including without limitation liabilities
for taxes) other than liabilities expressly assumed by Purchaser; or (v)
Purchaser's loss of any Assumed Contracts which required the Seller to execute
a certification or representation for the client that Seller was owned, in part
or in whole, by any particular class of persons (such as women or any minority
ethnic group, etc.), provided that this indemnity in (v) shall only apply if
the certification was false when made by the Sellers. Notwithstanding any
language in this Section 14 to the contrary, the liability herein shall not
apply individually to Maria Zamparelli. Additionally, the individual liability
of the other Primary Stockholders and the maximum liability from the listed
Primary Stockholders shall be as follows:
Individual Portion of Liability
-------------------------------
James A. and Maria Zamparelli 66-2/3%
Michael Monda 16-2/3%
John Costa 16-2/3%
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Maximum Total Liability of all Listed Primary Stockholders
----------------------------------------------------------
First Year of Agreement $6,000,000
Second Year of Agreement $4,000,000
Third Year of Agreement $2,000,000
Purchaser shall not be required to exhaust its remedies against Seller prior to
seeking indemnification fromthe listed Primary Stockholders.
15. INDEMNITY BY PURCHASER. Without limiting any of their other
obligations under this Agreement, the Purchaser agrees to indemnify and hold
harmless the Sellers and the Primary Stockholders, other stockholders,
affiliates, officers, directors, and employees against and from any loss,
liability, damages, cost or expense incurred by them (including but not limited
to reasonable attorneys' and accounting fees and expenses) based upon, arising
out of, or relating to: (i) any materially inaccurate, untruthful or erroneous
representation or warranty of the Purchaser set forth in this Agreement or any
certificate or document delivered pursuant to this Agreement (provided that if
any such representation or warranty already contains a materiality standard
then the materiality standard in this section shall not apply); (ii) any
material failure to perform any of the covenants, conditions or agreements of
the Purchaser set forth in this Agreement or with respect to any transaction
contemplated in this Agreement; (iii) the ownership or operation of the Offices
after the Closing Date (including without limitation payments of amounts due
after the Closing under the Leases and equipment leases set forth on Schedule
1); (iv) any liabilities expressly assumed by Purchaser including without
limitation the obligations as the tenant under the Leases from and after the
Closing Date, but only if the landlord has consented to the assignment thereof
to the Purchaser; or (v) any actual costs or expenses incurred by Sellers or
the Primary Stockholders as a result of Purchaser's breach of the subordination
agreement.
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16. LOSS OR DESTRUCTION. Sellers shall continue to operate the
Offices until the Closing Date. Sellers shall assume all risk of loss,
destruction, or damage due to fire or other casualty until the Closing Date.
Sellers shall provide prompt written notice to Purchaser of any loss,
destruction, or damage due to fire or other casualty. Purchaser shall have the
right to cancel this Agreement if the operations of the Offices are interrupted
prior to said date by loss, destruction, or damage due to fire or other
casualty. If Purchaser does not exercise its right to cancel within ten (10)
days subsequent to written notification, as stated herein, Purchaser shall take
the Assets in the existing condition, together with any insurance proceeds
payable by virtue of such loss or damage.
17. CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE. The
obligation of Purchaser to consummate the transactions herein contemplated is,
at Purchaser's option, subject to the following express conditions precedent:
(a) Except for the leased assets set forth on Schedule 1,
the Assets shall be free and clear of all mortgages, liens, security interests,
pledges, charges, obligations and other encumbrances;
(b) The representations and warranties of the Sellers and
the Primary Stockholders contained in this Agreement shall be true in all
material respects (provided that if any representations or warranties already
contains a materiality standard then the materiality references in this
subsection shall not apply) at and as of the Closing Date, as though such
representations and warranties had been made at and as of the Closing Date;
(c) The Sellers and the Primary Stockholders shall have
delivered all of the items to be delivered by them to Purchaser at Closing
pursuant to Subsection 8 above, and shall not be in default under any other
provision of this Agreement at or prior to the Closing Date;
(d) The Assets shall not have been damaged as the result
of any act of nature, fire, flood, war, labor disturbance or similar calamity
(unless Purchaser has waived the event), and there
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shall have been no material adverse changes in the Assets, the Offices, or the
financial condition of the Sellers since the execution of this Agreement;
(e) Purchaser shall have obtained approval of its senior
lenders led by BankBoston, N.A., formerly known as the First Bank of Boston,
for this transaction and approval for the making of payments due under the
Promissory Note will not violate any agreement between Purchaser and its senior
lenders;
(f) Sellers shall have delivered to Purchaser the
Subordination Agreements (Schedule 5) without amendment or alteration and
executed by Sellers for the benefit of Purchaser's senior lenders;
(g) Sellers shall have delivered to Purchaser executed
UCC-3 statements for any liens on Sellers' Assets (other than the leased assets
that comprise a part of the Assumed Contracts); and
(h) Sellers shall have executed all documents necessary
to effectuate the transfer of the name, "Cross," and all variations thereof as
set forth on Schedule 7 to Purchaser.
18. CONDITIONS PRECEDENT TO THE SELLERS' OBLIGATION TO CLOSE. The
obligation of the Sellers to consummate the transactions contemplated herein at
Closing is, at the option of the Sellers, subject to the following express
conditions precedent:
(a) The representations and warranties of Purchaser
contained in this Agreement were true when made and shall be true in all
material respects at and as of the Closing Date, as though such representations
and warranties had been made at and as of the Closing Date;
(b) Purchaser shall have delivered all of the items to be
delivered by it to the Sellers and the Primary Stockholders at Closing pursuant
to Subsection 9 above, and shall not be in default under any other provisions
of this Agreement at or prior to the Closing Date;
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(c) Purchaser shall have provided Sellers a certification
signed by the Secretary of the Purchaser that the senior lenders, including
BankBoston, N.A., formerly known as the First Bank of Boston, have approved the
transaction as set forth in this Agreement and that the making of payments due
under the Promissory Note will not violate any agreement between Purchaser and
its Senior Lenders; and
(d) Sellers have received the written approval of the
landlord under the Leases to the assignment of such Leases to Purchaser
(whether or not requiring Sellers to remain liable for the Lease obligations)
and such approval shall not require the payment not specified in the Lease of
any additional amounts by Sellers or Primary Stockholders to such landlord.
19. ADDITIONAL POST-CLOSING RESPONSIBILITIES. In addition to the
obligations set forth in Paragraph 7, the parties shall comply with the
following obligations after the Closing:
(a) At Purchaser's request, without further
consideration, the Sellers and the Primary Stockholders will execute and
deliver after Closing such further instruments of conveyance and transfer and
take such other action as Purchaser may reasonably require for the transfer of
the Assets;
(b) After the Closing, Seller and Purchaser shall fully
cooperate with each other to further consummate the agreements and transactions
contemplated by this Agreement, and shall make available (at the cost of the
party requesting such information) to the other, as reasonably requested as
soon as practical, information requested by the other relating to the Assets,
the Assumed Liabilities, the financial, accounting, payroll, invoicing,
shipping, ordering, data processing, personnel and administrative books,
records, systems, procedures and applications and software programs in whatever
media requested and available, for the purpose of preparing reports, audits,
tax returns, instruments and documents of transfer, or answering, defending or
prosecuting any audits, liabilities, claims, disputes, and/or investigations
of, by or against Seller or Purchaser. Such cooperation and availability shall
-23-
<PAGE> 28
include, but shall not be limited to, providing information necessary to
complete the procedures required to prepare and file the tax returns and to
prepare and assist in any certified audit requiring deficiency notices, other
inquiries or litigation by any governmental authority or other third party.
Seller and Purchaser shall also make available to each other, upon reasonable
request during normal business hours, knowledgeable employees, advisors and
other personnel responsible for preparing and maintaining information, records
and documents in connection with filings, audits, disputes, claims, or
litigation relating to the Assets, Assumed Liabilities, or the obligations of
the parties pursuant to this Agreement.
(c) At the request of Sellers, without further
consideration, Purchaser will execute and deliver after Closing such further
evidence as the Sellers may reasonably require of Purchaser's assumption of the
Leases and the Assumed Contracts;
(d) At the request of Purchaser, the Sellers and/or the
Primary Stockholders, as applicable, will execute and deliver after Closing
such further documents as Purchaser may reasonably require in order to fully
effect the transfer of the Assets to Purchaser and otherwise to fully enable
Purchaser to operate the business purchased from Sellers.
(e) For ninety (90) days after the Closing Date at
Purchaser's request, the Sellers and the Primary Stockholders shall assist
Purchaser in every reasonable manner in billing and collection efforts and in
maintaining the business relationships presently enjoyed by the Sellers and the
Primary Stockholders with respect to the Offices;
(f) Provided Purchasers are not in default under the
Promissory Note (which default only occurs after written notice to Purchaser
and a five (5) day cure period), the Sellers and the Primary Stockholders agree
that, during their employment by Purchaser or assigns and for three (3) years
-24-
<PAGE> 29
subsequent to the termination of their employment with Purchaser or assigns,
they will not, directly or indirectly:
(i) own, operate, manage, be employed by, engage
in, provide assistance to, or have a financial interest in any temporary
employment services business, permanent placement business, or similar business
within a three (3) mile radius of the Offices, so long as Purchaser, or a
person or entity deriving title from Purchaser to operate the Offices,
continues to operate the Offices. For purposes of this provision "temporary
employment services business" includes, but is not limited to, "employee
leasing," "temp-to-hire," "payrolling" and "contract temporary" services;
(ii) solicit employment services business from any
client with whom the Offices did or do business, if such client placed an order
with Sellers within the three (3) year period prior to the Closing Date; or
(iii) employ or seek to employ any employee of the
Offices or Purchaser or in any other manner attempt, directly or indirectly, to
influence, induce or encourage any employee to leave the employment of the
Offices or Purchaser.
Notwithstanding anything stated herein, if the Primary Stockholders
are employees of Purchaser three (3) years subsequent to the Closing Date, the
post termination obligations set forth herein shall apply only for two (2)
years beyond termination of employment with Purchaser. Additionally, if the
Primary Stockholders are employees of Purchaser for four (4) years subsequent
to the Closing Date, the post termination obligations set forth herein shall
apply only for one (1) year beyond termination of employment with Purchaser;
(g) Within fourteen (14) days subsequent to Closing Date,
Sellers shall provide to Purchaser an affidavit stating that all state and
local sales and employment taxes due through the Closing Date have been paid.
Sellers shall timely file all federal, state and local returns relating to the
period
-25-
<PAGE> 30
through the Closing Date which become due after the Closing Date; shall timely
pay all taxes shown by such returns to be due and payable, together with any
interest or penalties which may be assessed by taxing authorities on any taxes
which were not timely paid; and shall deliver to Purchaser copies of all tax
clearance letters and closing notices received from government authorities
which relate to the Offices; and
(h) Primary Stockholders agree to limit for three (3)
years the annual expenditures for promotion and entertainment of clients and
prospective clients to Two Hundred Fifty Thousand and 00/100 Dollars ($250,000)
without the authorization of Purchaser.
20. NOTICES. All notices pursuant to this Agreement shall be sent
in writing to addresses set forth below, unless changed by written notice in
accordance with this Section 20. Any notice sent by telecopy shall be
confirmed by mail.
To Sellers and/or the Primary Stockholders
To Sellers: Cross Personnel Agency, Inc.
150 Broadway, 9th Floor
New York, New York 10038
Attn: Mr. James A. Zamparelli
To James A. Zamparelli or Maria Zamparelli: James A. or Maria Zamparelli
Two Hartley Lane
Basking Ridge, New Jersey 07920
To Michael Monda: Michael Monda
11 Longview Drive
Colts Neck, New Jersey 07722
To John Costa: John Costa
14 Sterling Court
East Brunswick, New Jersey 08816
-26-
<PAGE> 31
To Purchaser: Snelling and Snelling, Inc.
12801 N. Central Expressway, Suite 700
Dallas, Texas 75243
Attn: Timothy J. Loncharich
Telecopy No.: (214)239-6879
(With a copy to: Barbara A. McAninch
Vice President, Legal and General Counsel)
21. TERMINATION. The Sellers or Purchaser may terminate this
Agreement by written notice to the other in the event the transactions
contemplated herein have not closed by October 6, 1997; provided, however, that
a party may not terminate this Agreement as a result of the transactions
contemplated herein having not closed by such date if such failure for the
Closing to occur is caused by such party's failure to commence its performance
of any obligation under this Agreement; and
(a) This Agreement may also be terminated:
(i) At any time prior to the Closing Date, by
mutual consent of Purchaser and Sellers;
(ii) At the Closing by the Purchaser, if any of
the conditions of Sellers' or the Primary Stockholders' obligations hereunder
shall not have been satisfied at or prior to the Closing Date and shall not
have been waived by Purchaser; and
(iii) At the Closing, by the Sellers, if any of the
conditions of Purchaser's obligations hereunder shall not have been satisfied
at or prior to the Closing Date.
(b) Such notice of termination shall be effective as to
all parties to this Agreement, whether or not they receive notice individually.
If this Agreement is terminated by the Sellers or by Purchaser for the reason
stated above without consummation of the transactions contemplated herein, such
termination shall be without further liability or obligation by any party to
any other party to this Agreement except termination will not relieve a party
of liability for a breach of this Agreement occurring prior to such
termination.
-27-
<PAGE> 32
22. GENERAL PROVISIONS. Each party shall bear its own legal
and other costs and expenses in connection with the negotiation, preparation
and execution of this Agreement, and the performance of the transactions
contemplated hereby;
(a) This Agreement and the documents referred to herein
constitute the entire agreement among the parties with respect to the sale and
purchase of the Assets and supersede all previous written or oral negotiations,
commitments, and writing concerning the same subject matter;
(b) This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument;
(c) This Agreement may be amended only in writing and
executed by all of the parties;
(d) This Agreement will inure to the benefit of, and
bind, the respective heirs, personal representatives, successors and permitted
assigns of the parties;
(e) Sellers and Primary Stockholders acknowledge that
they owe a brokers fee to Gottesman Company. Purchaser acknowledges that it
owes a finders fee to Gottesman Company. Each party shall be responsible for
its own brokers or finders fee. Each party shall indemnify the other party for
a claim against such party by virtue of a claim for a finders or broker fee
against the other party;
(f) This Agreement shall be governed by the laws of the
State of Texas; and
(g) Sellers and Purchaser represent that the individuals
executing this Agreement have the requisite corporate authorization to bind the
corporations to the terms hereof.
23. MEDIATION AND ARBITRATION. The parties agree that any and all
disputes, claims or controversies arising out of or relating to this Agreement
shall be submitted to J.A.M.S/ENDISPUTE, or its successor, for mediation, and
if the matter is not resolved through mediation, then it shall be submitted to
J.A.M.S./ENDISPUTE, or its successor, for final and binding arbitration.
Either party may
-28-
<PAGE> 33
commence mediation by providing to J.A.M.S/ENDISPUTE, and the other party a
written request for mediation, setting forth the subject of the dispute and the
relief requested. The parties will cooperate with J.A.M.S/ENDISPUTE and with
one another in selecting a mutually agreeable mediator from J.A.M.S/ENDISPUTE's
panel of neutrals, and in scheduling the mediation proceedings. The parties
covenant that they will participate in the mediation in good faith, and that
they will share equally in its costs. All offers, promises, conduct and
statements, whether oral or written, made in the course of the mediation by any
of the parties, their agents, employees, experts and attorneys, and by the
mediator or any J.A.M.S/ENDISPUTE employees, are confidential, privileged and
inadmissible for any purpose, including impeachment, in any arbitration or
other proceeding involving the parties, provided that evidence that is
otherwise admissible or discoverable shall not be rendered inadmissible or
non-discoverable as a result of its use in the mediation.
The parties agree that any and all disputes, claims or controversies
arising out of or relating to this Agreement that are not resolved by their
mutual agreement or mandatory or reasonable mediation set forth above, shall be
submitted to final and binding arbitration before J.A.M.S/ENDISPUTE, or its
successor, pursuant to the United States Arbitration Act, 9 U.S.C. Sec. 1 et
seq. Either party may commence the arbitration process called for in this
Agreement by filing a written demand for arbitration with J.A.M.S/ENDISPUTE,
with a copy to the other party. The arbitration will be conducted in Dallas,
Texas in accordance with the provision of J.A.M.S/ENDISPUTE's Comprehensive
Arbitration Rules and Procedures in effect at the time of filing of the demand
for arbitration. The parties will cooperate with J.A.M.S/ENDISPUTE and with
one another in selecting an arbitrator from J.A.M.S/ENDISPUTE's panel of
neutrals, and in scheduling the arbitration proceedings. The parties covenant
that they will participate in the arbitration in good faith, and that they will
share equally in its costs. The provisions of this paragraph may be enforced
by any Court of competent jurisdiction, and the party seeking
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<PAGE> 34
enforcement shall be entitled to an award of all costs, fees and expenses,
including attorneys fees, to be paid by the party against whom enforcement is
ordered.
24. CONFIDENTIALITY. Neither Purchaser nor Sellers, nor any of
their respective stockholders, affiliates, officers, employees, agents or
representatives shall: (a) make any press releases or any published statement
concerning the transactions contemplated herein without the prior written
consent of all of the parties hereto, except where such press releases or
statement is required by applicable law; or (b) disclose the terms or existence
of this Agreement to any person or entity, other than to their respective
attorneys and other representatives, and to those parties such as bankers and
lessors with whom they must communicate in order to consummate the proposed
transactions or except as required by law. Purchaser and Sellers shall be
permitted to discuss the transactions contemplated herein with their respective
suppliers and vendors, provided that they instruct such suppliers and vendors
to keep all such communications confidential. Sellers are prohibited after the
Closing from disclosing or using any confidential information relating to the
business sold to Purchaser.
25. BULK TRANSFER LAWS. The parties waive compliance with the
requirements of the bulk transfer or bulk sales law of any jurisdiction in
connection with the sale of the Assets to Purchaser under this Agreement.
Sellers shall indemnify and hold Purchaser harmless against any and all losses
incurred by Purchaser as a result of noncompliance with any such laws.
26. SURVIVAL OF REPRESENTATIONS. All representations, warranties,
agreements, and post-Closing responsibilities set forth herein made by the
parties hereto , shall survive Closing.
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<PAGE> 35
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed of the date first written above.
CROSS TEMPS, INC.
/s/ [ILLEGIBLE] By: /s/ JAMES A. ZAMPARELLI
- ------------------------------ ------------------------------
Witness Name: James A. Zamparelli
----------------------------
Title: President
CROSS PERSONNEL AGENCY, INC.
/s/ [ILLEGIBLE] By: /s/ JAMES A. ZAMPARELLI
- ------------------------------ ------------------------------
Witness Name: James A. Zamparelli
----------------------------
Title: President
Primary Stockholders:
/s/ [ILLEGIBLE] /s/ JAMES A. ZAMPARELLI
- ------------------------------ ------------------------------
Witness James A. Zamparelli
/s/ [ILLEGIBLE] /s/ MARIA ZAMPARELII
- ------------------------------ ------------------------------
Witness Maria Zamparelli
/s/ [ILLEGIBLE] /s/ MICHAEL MONDA
- ------------------------------ ------------------------------
Witness Michael Monda
/s/ [ILLEGIBLE] /s/ JOHN COSTA
- ------------------------------ ------------------------------
Witness John Costa
/s/ [ILLEGIBLE] By: /s/ JAMES A. ZAMPARELLI
Witness
SNELLING AND SNELLING, INC.
By: /s/ TIMOTHY J. LONCHARICH
- ------------------------------ ------------------------------
Witness Name: Timothy J. Loncharich
Title: President and Chief
Executive Officer
-31-
<PAGE> 1
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
SEVEN MONTHS DECEMBER 31,
YEAR ENDED ENDED ----------------
MAY 31, 1994 DECEMBER 31, 1994 1995 1996
------------ ----------------- ------ ------
<S> <C> <C> <C> <C>
Net earnings................................ $ 112 $ 858 $2,690 $3,314
====== ======= ====== ======
Weighted average shares outstanding......... 5,303 5,247 5,242 5,201
Dilutive effect of stock options, using the
treasury stock method..................... 1,765 1,765 1,765 1,765
------ ------- ------ ------
Weighted average shares and equivalent
shares.................................... 7,068 7,012 7,007 6,966
====== ======= ====== ======
Earnings per share.......................... $ .02 .12 .38 .48
====== ======= ====== ======
</TABLE>
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
1. Advance Processing Systems, Inc., a Florida corporation.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated April 25, 1997 accompanying the
consolidated financial statements and schedule of Snelling and Snelling, Inc.
and our report dated August 15, 1997 accompanying the financial statements of
B.A.T. Group contained in the Registration Statement and Prospectus. We consent
to the use of the aforementioned reports in the Registration Statement and
Prospectus, and to the use of our name as it appears under the caption
"Experts."
GRANT THORNTON LLP
Dallas, Texas
October 15, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JUN-01-1996
<PERIOD-END> JUN-30-1997 DEC-31-1996
<CASH> 2,313 549
<SECURITIES> 0 0
<RECEIVABLES> 23,312 21,718
<ALLOWANCES> 681 349
<INVENTORY> 0 0
<CURRENT-ASSETS> 28,217 24,704
<PP&E> 8,325 8,633
<DEPRECIATION> 3,596 3,579
<TOTAL-ASSETS> 55,679 52,055
<CURRENT-LIABILITIES> 14,070 16,358
<BONDS> 0 0
0 0
0 0
<COMMON> 47 58
<OTHER-SE> 13,849 15,185
<TOTAL-LIABILITY-AND-EQUITY> 55,679 52,055
<SALES> 0 0
<TOTAL-REVENUES> 106,380 168,602
<CGS> 0 0
<TOTAL-COSTS> 79,440 122,945
<OTHER-EXPENSES> 22,768 38,856
<LOSS-PROVISION> 211 226
<INTEREST-EXPENSE> 1,258 1,100
<INCOME-PRETAX> 2,703 5,475
<INCOME-TAX> 1,077 2,161
<INCOME-CONTINUING> 1,626 3,314
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,626 3,314
<EPS-PRIMARY> 1.27 .48
<EPS-DILUTED> 1.27 .48
</TABLE>
