<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(b) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996.
or
TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(b) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO _______________.
Commission file number: 0-24484
AccuStaff Incorporated
(Exact name of registrant as specified in its charter)
Florida 59-3116655
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6440 Atlantic Boulevard, Jacksonville, Florida 32211
(Address of principal executive offices) (Zip Code)
(904) 725-5574
(Registrant's telephone number including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
November 7, 1996
Common Stock, $0.01 par value: 66,085,488
(No. of Shares)
<PAGE>
ACCUSTAFF INCORPORATED AND SUBSIDIARIES
INDEX
PAGE
----
PART I Financial Information
ITEM 1 Financial Statements
Consolidated Balance Sheets as of September 30, 1996 and
December 31, 1995............................................... 2
Consolidated Statements of Income for the Three and Nine Months
Ended September 30, 1996 and October 1, 1995.................... 3
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1996 and October 1, 1995.......................... 4
Notes to Consolidated Financial Statements...................... 5-7
ITEM 2 Management's Discussion and Analysis of Financial............... 8-13
Condition and Results of Operations
PART II Other Information
ITEM 4 Submission of Matters to a Vote of Security-Holders............. 14
ITEM 6 Exhibits and Reports on Form 8-K................................ 15
Signatures...................................................... 16
1
<PAGE>
ACCUSTAFF INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
ASSETS
------
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents.............. $130,389 $ 34,427
Accounts receivable, net............... 120,341 41,266
Prepaid expenses....................... 7,323 1,170
Deferred income taxes.................. 83 1,353
-------- --------
Total current assets.................. 258,136 78,216
Furniture, equipment, and leasehold 13,353 6,235
improvements, net......................
Goodwill, net........................... 233,658 65,489
Other assets............................ 13,727 931
-------- --------
Total assets.......................... $518,874 $150,871
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable, current portion......... $ 8,914 $ 10,512
Accounts payable and accrued expenses.. 13,830 4,140
Accrued payroll and related taxes...... 22,695 9,534
Accrued workers' compensation claims... 3,453 2,700
Convertible subordinated debentures.. 1,000 -
-------- --------
Total current liabilities............. 49,892 26,886
Convertible subordinated debentures..... - 2,300
Notes payable, long-term portion........ 11,199 4,510
Deferred income taxes, non-current 3,742 276
portion................................ -------- --------
Total liabilities.................. 64,833 33,972
-------- --------
Commitments
Stockholders Equity:
Preferred stock, $.01 par value; 10,000
shares authorized; no shares issued
and outstanding..................... - -
Common stock, $.01 par value; 150,000
shares authorized; 66,041 and
51,374 shares issued and outstanding
on September 30, 1996 and
December 31, 1995, respectively..... 660 514
Additional contributed capital........ 418,838 96,765
Retained earnings..................... 39,227 19,699
-------- --------
458,725 116,978
Less: Deferred stock compensation.. (4,684) (79)
-------- --------
Total stockholders' equity............ 454,041 116,899
-------- --------
Total liabilities and stockholders'
equity............................... $518,874 $150,871
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE>
ACCUSTAFF INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------ ------------------------------
SEPT. 30, 1996 OCT. 1, 1995 SEPT. 30, 1996 OCT. 1, 1995
--------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Revenue................................. $218,810 $84,096 $553,271 $221,616
Cost of revenue......................... 169,876 67,530 434,397 181,293
-------- ------- -------- --------
Gross profit...................... 48,934 16,566 118,874 40,323
-------- ------- -------- --------
Operating expenses:
General and administrative........ 27,829 10,533 71,347 26,575
Depreciation and amortization..... 3,096 655 7,274 1,390
-------- ------- -------- --------
Total operating expenses...... 30,925 11,188 78,621 27,965
-------- ------- -------- --------
Income from operations............ 18,009 5,378 40,253 12,358
-------- ------- -------- --------
Other income (expense):
Interest income................... 1,364 67 2,782 364
Interest expense.................. (369) (224) (2,280) (405)
Acquisition expense............... - - (2,800) -
-------- ------- -------- --------
Total other income (expense).. 995 (157) (2,298) (41)
-------- ------- -------- --------
Income before provision for income taxes 19,004 5,221 37,955 12,317
-------- ------- -------- --------
Provision for income taxes.............. 7,410 1,509 16,152 3,331
-------- ------- -------- --------
Net income........................ $ 11,594 $ 3,712 $ 21,803 $ 8,986
======== ======= ======== ========
Pro forma data:
Income before provision
for income taxes.............. 19,004 5,221 37,955 12,317
Provision for income taxes,
pro forma..................... 7,410 2,021 15,589 4,764
-------- ------- -------- --------
Pro forma net income.............. $ 11,594 $ 3,200 $ 22,366 $ 7,553
======== ======= ======== ========
Pro forma earnings per share............ $0.17 $0.08 $0.35 $0.19
======== ======= ======== ========
Weighted average number of common
shares and common share equivalents
outstanding............................ 69,514 39,577 64,864 39,267
======== ======= ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
ACCUSTAFF INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------
SEPT. 30, 1996 OCT.1, 1995
--------------- ------------
<S> <C> <C>
Cash flows provided by (used in)
operating activities:
Net income............................. 21,803 8,986
--------- --------
Adjustments to reconcile net income
to net cash provided by
(used in) operating activities:
Depreciation and amortization.... 7,274 1,390
Provision for doubtful accounts 777 356
Deferred income taxes............ 4,705 (728)
Compensation for stock options
granted......................... 283 72
Changes in certain assets and
liabilities:
Accounts receivable............ (40,153) (8,733)
Prepaid expenses............... 2,759 (68)
Other assets................... (1,601) (415)
Accounts payable and accrued
expenses...................... 11 2,065
Accrued payroll and related
taxes......................... 8,900 5,011
Accrued workers'
compensation claims........... 753 1,213
--------- --------
Net cash provided by
operating activities....... 5,511 9,149
========= ========
Cash flows provided by (used in)
investing activities:
Purchases of investments............... (10,438) (2,028)
Sales and maturities of investments.... - 8,842
Purchase of furniture, equipment and
leasehold improvements................ (6,380) (2,016)
Purchase of businesses, including
additional earn-outs on
acquisitions net of cash
acquired.............................. (169,559) (25,588)
--------- --------
Net cash used in
investing activities....... (186,377) (20,790)
========= ========
Cash flows provided by (used in)
financing activities:
Proceeds from issuance of common
stock................................. 304,704 -
Proceeds from stock options exercised.. 2,828 388
Proceeds from issuance of
convertible subordinated debentures... - 2,000
Borrowings on notes payable............ 96,822 11,717
Repayments on notes payable............ (125,605) (2,515)
Distributions to former shareholders
of acquired S-corporations............ (1,921) (1,075)
--------- --------
Net cash provided by
financing activities....... 276,828 10,515
--------- --------
Net increase (decrease) in cash and 95,962 (1,126)
cash equivalents......................... --------- --------
Cash and cash equivalents, beginning of 34,427 9,438
period................................... --------- --------
Cash and cash equivalents, end of period.. $ 130,389 $ 8,312
========= ========
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
ACCUSTAFF INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION.
The accompanying consolidated financial statements are unaudited and have
been prepared by the Company in accordance with the rules and regulations
of the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures usually found in financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted. The financial statements should be read in
conjunction with the consolidated financial statements and related notes
included in the Company's Form 10-K, as filed with the Securities and
Exchange Commission on March 27, 1996.
The accompanying consolidated financial statements reflect all adjustments
(including normal recurring adjustments) which, in the opinion of
management, are necessary to present fairly the financial position and
results of operations for the interim periods presented. The results of
operations for an interim period are not necessarily indicative of the
results of operations for a full fiscal year.
All share and per share data have been restated to reflect the Company's
stock splits in the form of a 100% stock dividend and a 200% stock dividend
which were effective November 27, 1995 and March 27, 1996, respectively.
In addition, the Company completed the acquisitions of The McKinley Group,
Inc. and an affiliated company ("McKinley") on June 19, 1996 and PTA
International ("Perma Temps") on January 2, 1996, each of which was
accounted for as a pooling of interests. Both McKinley and Perma Temps
were treated as S-corporations for federal income tax purposes prior to
their acquisition and accordingly were not subject to income tax at the
corporate level. Therefore, all prior period financial statements
presented have been restated as if the acquisitions had taken place at the
beginning of such periods and each was treated as a C-corporation for
federal income tax purposes.
2. AGREEMENT AND PLAN OF MERGER.
On August 26, 1996, the Company entered into an Agreement and Plan of
Merger (the "Agreement") with Sunrise Merger Corporation, a wholly owned
subsidiary of the Company and Career Horizons, Inc. ("Career") pursuant to
which the Company will acquire Career through the merger of Career and
Sunrise Merger Corporation. The companies have received notice from the
Federal Trade Commission of early termination of the waiting period under
the Hart-Scott-Rodino Act. The Joint Proxy Statement/Prospectus relating
to the Agreement was declared effective by the Securities and Exchange
Commission on October 7, 1996, and proxy materials were mailed to
shareholders of both companies on October 8, 1996, in advance of the
companies' special meetings of stockholders which will each be held on
November 14, 1996. The transaction is currently expected to close the same
day.
The unaudited pro forma condensed combined balance sheet and statement of
operations as of and for the nine months ended September 30, 1996, appear
below.
The unaudited pro forma condensed combined statements of operations for the
nine months ended September 30, 1996 give effect to (i) the acquisition of
Career applying the pooling of interests method of accounting and (ii) all
other acquisitions completed by AccuStaff and Career between January 1,
1996, and September 16, 1996, as if each had been completed on January 1,
1996. The unaudited pro forma condensed balance sheet as of September 20,
1996, presents the combined financial position of AccuStaff and Career as
if the Merger were consummated as of September 30, 1996. The unaudited pro
forma condensed balance sheet reflects (i) the Merger with Career applying
the pooling of interests method of accounting, (ii) certain adjustments
that are directly attributable to the Merger, including estimated non-
recurring acquisition costs of $15.0 million and estimated non-recurring
restructuring costs of $10.0 million,and (iii) all other acquisitions
completed by AccuStaff and Career through September 16, 1996. In accordance
with Securities and Exchange Commission Rules, the estimated non-recurring
acquisition costs of $15.0 million and estimated non-recurring corporate
restructuring costs related to the Merger of $10.0 million have not been
included in the pro forma condensed statement of operations included
herein.
5
<PAGE>
PRO FORMA CONSOLIDATED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
ASSETS ACCUSTAFF CAREER ADJUSTMENTS PRO FORMA
------ ------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.......................... $130,389 $ 29,964 $ - $160,353
Accounts receivable, net........................... 120,341 109,412 - 229,753
Due from associated offices, net................... - 36,592 - 36,592
Prepaid expenses................................... 7,323 4,213 - 11,536
Other receivables, net............................. - 2,687 - 2,687
Deferred income taxes.............................. 83 4,539 - 4,622
-------- -------- -------- --------
Total current assets............................ 258,136 187,407 - 445,543
Furniture, equipment and leasehold
improvements, net................................... 13,353 9,685 23,038
Goodwill, net........................................ 233,658 166,500 - 400,158
Deferred income taxes................................ - 1,460 (1,460)(c) -
Other assets......................................... 13,727 3,582 - 17,309
-------- -------- -------- --------
Total assets.................................... $518,874 $368,634 $ (1,460) $886,048
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable, current portion..................... $ 8,914 $ 3,714 $ - $ 12,628
Accounts payable and accrued expenses.............. 17,283 35,079 25,000 (a) 77,362
Accrued payroll and related taxes.................. 22,695 44,519 - 67,214
Convertible subordinated debentures................ 1,000 - - 1,000
-------- -------- -------- --------
Total current liabilities....................... 49,892 83,312 25,000 158,204
7% Convertible senior notes.......................... - 86,250 - 86,250
Notes payable, long term portion..................... 11,199 2,000 13,199
Deferred income taxes................................ 3,742 - (1,460)(c) 2,282
Other................................................ - 27 - 27
-------- -------- -------- --------
Total liabilities............................... 64,833 171,589 23,540 259,962
-------- -------- -------- --------
Commitments
Stockholders' equity:
Preferred stock, $.01 par value; 10,000 shares
authorized, no shares issued and outstanding..... - - -
Common stock, $.01 par value; 150,000 shares
authorized; 93,076 shares
issued and outstanding on September 30, 1996..... 660 177 93 (b) 930
Additional contributed capital..................... 418,838 169,824 (148)(b) 588,514
Retained earnings.................................. 39,227 27,099 (25,000)(a) 41,326
-------- -------- -------- --------
458,725 197,100 (25,055) 630,770
Less: Deferred stock compensation............... (4,684) - - (4,684)
Treasury stock............................ - (55) 55 (b) -
Total stockholders' equity...................... 454,041 197,045 (25,000) 626,086
-------- -------- -------- --------
Total liabilities and stockholders' equity...... $518,874 $368,634 $ (1,460) $886,048
======== ======== ======== ========
</TABLE>
6
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
for the nine months ended September 30, 1996
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Historical
--------------------------------------------------------------------
AccuStaff Career Pro Forma Pro Forma
AccuStaff Acquisitions Career Acquisitions Adjustments Combined
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $553,271 $85,430 $444,342 $84,414 - $1,167,457
Cost of revenue 434,397 63,589 337,796 62,698 - 898,480
-------- ------- ------- ------ ------- ----------
Gross profit 118,874 21,841 106,546 21,716 - 268,977
-------- ------- ------- ------ ------- ----------
Operating expenses:
General and administrative 71,347 21,330 78,319 17,741 (11,079)(d) 177,658
Depreciation and amortization 7,274 175 4,808 472 2,943 (e) 15,672
-------- ------- ------- ------ ------- ----------
Total operating expenses 78,621 21,505 83,127 18,213 (8,136) 193,330
-------- ------- ------- ------ ------- ----------
Income from operations 40,253 336 23,419 3,503 8,136 75,647
-------- ------- ------- ------ ------- ----------
Other Income (expense)
Other - 71 - - - 71
Interest income 2,782 65 - - - 2,847
Interest expense (2,280) (331) (2,656) (425) (3,310)(f) (9,002)
Acquisition expense (2,800) - - - - (2,800)
-------- ------- ------- ------ ------- ----------
Total other income (expense) (2,298) (195) (2,656) (425) (3,310) (8,884)
-------- ------- ------- ------ ------- ----------
Income before provision for income taxes 37,955 141 20,763 3,078 4,826 66,763
Provision for income taxes(h) 15,589 56 7,993 1,185 1,930 (g) 26,753
-------- ------- ------- ------ ------- ----------
Net income $ 22,366 $ 85 $ 12,770 $ 1,893 $ 2,896 $ 40,010
======== ======= ======== ======= ======= ==========
Earnings per share of common and common
stock equivalents $ .035 $ 0.40
======== ==========
Weighted average number of shares outstanding 64,864 99,519
======== ==========
</TABLE>
7
<PAGE>
Pro Forma Adjustments
---------------------
(a) This adjustment reflects the accrual of non-recurring acquisition and
corporate restructuring costs related to the Merger and the related
reduction of retained earnings.
(b) This adjustment reflects the reclassification of stockholders' equity
required under the pooling of interests method of accounting.
(c) This adjustment reflects the reclassification of the non-current
deferred tax asset of AccuStaff.
(d) This adjustment primarily reflects the contractual reduction in officer
compensation relating to the AccuStaff and Career Acquisitions as the
result of negotiated employment agreements, which provides for
substantially the same management duties or responsibilities, offset by
increases in officers incentive compensation per employment agreements
of AccuStaff Incorporated.
(e) This adjustment reflects the increase in amortization expense related to
the goodwill recorded under the purchase method of accounting for the
AccuStaff and Career Acquisitions for the nine months ended September
30, 1996.
(f) This adjustment reflects the increase in interest expense for cash
required to be borrowed at an interest rate of 6.5% and for the
additional bank debt and notes payable at interest rates ranging from
6.5% to 8% related to the purchase of the AccuStaff Acquisitions.
(g) This adjustment reflects the increase to income tax expense based on the
pro forma adjustments to income before provision for income taxes based
on the Company's effective tax rate of approximately 40%.
(h) The provision for income taxes includes the provision which was recorded
on a pro forma basis for all companies acquired at the Company's
effective tax rate of 40%.
Calculation of Earnings Per Share
---------------------------------
Historical earnings per share of AccuStaff is presented after giving effect
to AccuStaff's November 1995 2-for-1 stock split and February 1996 3-for-1
stock split. The pro forma earnings per share is calculated on the basis of
the weighted average number of shares and common share equivalents of
AccuStaff, after giving effect to the splits, and the issuance of shares to
consummate the Merger, calculated by multiplying the weighted average
shares outstanding for Career by an assumed 1.53 conversion ratio.
8
<PAGE>
3. INVESTMENTS.
Investment in Payroll Transfers, Inc. On August 8, 1996, the Company
established a strategic operating relationship with Payroll Transfers,
Inc., ("PTI") a Tampa, Florida based professional employer organization.
As part of this strategic relationship, the Company has agreed for a period
of eight years not to enter into any contract or understanding involving
the use of leased employees without first offering such business
opportunity to PTI. Likewise, PTI has agreed for a period of eight years
not to enter into any contract or understanding involving the use of
services of temporary employees without first offering such business
opportunity to the Company. In connection with entering into the
relationship, the Company invested in PTI in the form of an 8% Convertible
Subordinated Note (the "Note") from PTI which is convertible into PTI
common stock representing approximately 9.9% of PTI's outstanding common
stock. The Company also acquired an Option (the "Option") to purchase an
additional amount of PTI common stock equal to approximately 10% of the
outstanding shares of PTI after conversion of the Note and issuance of
the stock under the Option.
4. ACQUISITIONS.
The Company completed seven acquisitions in the three months ended
September 30, 1996. In July 1996, the Company acquired the operating
assets and business operations of Alta Technical Services, Inc., In-House
Counsel, Inc. and TRAK Services, Inc. and affiliated companies. In August
1996, the Company acquired the stock of Perspective Technology Corporation,
Datacorp Business Systems, Inc. and Staffware, Inc. In addition, in
September 1996, the Company acquired the operating assets and business
operations of North American Consulting Services, Inc.
The acquisition of Staffware has been accounted for under the pooling of
interests method of accounting while the other acquisitions completed
during the three months ended September 30, 1996 have been accounted for
under the purchase method of accounting. The aggregate purchase price of
the acquisitions accounted for under the purchase method of accounting was
$41.1 million, which was comprised of $34.0 million in cash, aggregate
notes payable to certain former shareholders acquired companies f $5.1
million, and common stock with a fair market value of $2.0 million. In
addition, certain former shareholders of the acquired companies are
eligible to receive contingent consideration upon attainment of certain
earnings targets. For acquisitions accounted for under the purchase method
of accounting, the excess of the purchase price (including any contingent
consideration paid) over the fair value of the tangible assets (goodwill)
is being amortized on a straight line basis over periods ranging from 15 to
30 years.
9
<PAGE>
The pro forma results of operations for the nine months ended September 30,
1996 and October 1, 1995 listed below reflect purchase accounting
adjustments and pro forma adjustments, including reduction of officers'
compensation as the result of negotiated employment agreements and
calculation of a tax provision for subsidiaries which were formally treated
as S-corporations for federal income tax purposes, assuming the
acquisitions which occurred during the three months ended September 30,
1996 had occurred at the beginning of the nine month periods ended
September 30, 1996 and October 1, 1995. These pro forma amounts are not
necessarily indicative of what actually would have occurred if the
acquisitions had been in effect for the entire period presented. In
addition, they are not intended to be projections of future results and do
not reflect any synergies that might be achieved from combined operations.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------------
SEPT. 30, 1996 OCT. 1, 1995
-------------------------------------
(in thousands, except per share data)
<S> <C> <C>
Revenue................................. $638,700 $555,986
Gross profit............................ 140,714 115,534
Income from operations.................. 47,398 29,736
Income before provision for income taxes 41,594 16,581
Net income.............................. 24,543 10,088
Earnings per share...................... $ 0.38 $ 0.25
</TABLE>
5. CHANGE IN FISCAL YEAR.
Commencing with the third quarter of 1996, the Company changed its fiscal
year from the period ending on the Sunday closest to December 31 of each
year to a calendar year.
6. SUBSEQUENT EVENTS.
Acquisitions Subsequent to September 30, 1996
In October 1996, the Company acquired the assets and business operations of
Contracted Services Group, Inc. d/b/a/ The Blackstone Group and the stock
of Scientific Staffing, Inc. and affiliated companies. The acquisitions
have been accounted for under the purchase method of accounting. The
aggregate purchase price of the acquisitions subsequent to September 30,
1996 was $36.4 million, which was comprised of cash in the amount of $32.4
million and notes payable to certain former shareholders aggregating $4.0
million. In addition, certain shareholders are eligible to receive
contingent consideration upon attainment of certain earnings targets. For
acquisitions accounted for under the purchase method of accounting, the
excess of the purchase price (including any contingent consideration paid)
over the fair value of the tangible assets (goodwill) is being amortized on
a straight line basis over 30 years.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED
OCTOBER 1, 1995.
Revenues. Revenues increased $134.7 million, or 160.2%, to $218.8 million in
the three months ended September 30, 1996 from $84.1 million in the three months
ended October 1, 1995. The increase was attributable by division to:
Professional Services, $93.5 million, or an increase of 649.4%; Commercial,
$38.0 million, or an increase of 87.8%; and Telecommunications, $3.2 million, or
an increase of 12.0%. Of the increase in the Professional Services division,
$85.9 million was attributable to acquisitions in the information technology and
technical service lines while the remaining $7.6 million was attributable to
acquisitions in the legal and accounting service lines and internal growth. Of
the increase in the Commercial division, $29.3 million was attributable to three
significant acquisitions: Excel Temporary Services, Inc. ("Excel"), $11.4
million; HR Management Services, Inc. ("HR Management"), $5.8 million; and
TempsAmerica, $12.1 million. The remaining $8.7 million was attributable to
internal growth and less significant acquisitions. The increase in the
Telecommunications division was due to internal growth.
Gross Profit. Gross profit increased $32.3 million, or 195.4%, to $48.9 million
in the three months ended September 30, 1996 from $16.6 million in the three
months ended October 1, 1995. The overall gross profit as a percentage of sales
increased from 19.7% to 22.4%, due to the increase in the mix of revenue
contributed by the Professional Services division which produces a higher gross
profit. Gross profit as a percentage of sales remained constant in the
Commercial division at 21.7%, while decreasing by 480 basis points to 26.3% in
the Professional Services division, due primarily to the acquisition of certain
technical service companies which generate lower margins compared to the types
of services which were provided by the Company's Professional Services division
in the three months ended October 31, 1995. Gross profit as a percentage of
sales in the Telecommunications division decreased by 40 basis points to 9.8%.
Operating Expenses. Operating expenses increased $19.7 million, or 176.4%, to
$30.9 million in the three months ended September 30, 1996 from $11.2 million in
the three months ended October 1, 1995. Operating expenses as a percentage of
revenues increased to 14.1% in the three months ended September 30, 1996 from
13.3% in the three months ended October 1, 1995. The increase is attributable
to the increase in depreciation and amortization expense and an increase in the
mix of professional services being provided by the Company in comparison to
Commercial division and Telecommunications division services. Higher operating
expenses are required to operate the Professional Services division compared to
the Commercial and Telecommunications divisions
Income from Operations. Income from operations increased $12.6 million, or
234.9%, to $18.0 million in the three months ended September 30, 1996, from $5.4
11
<PAGE>
million in the three months ended October 1, 1995. Income from operations as a
percentage of revenues increased to 8.2% in the three months ended September 30,
1996, from 6.4% in the three months ended October 1, 1995.
Interest Income. Interest income was $1.4 million for the three months ended
September 30, 1996 compared to $67,000 for the three months ended October 1,
1995, due to the interest income obtained from the proceeds of the Company's
public common stock offering in April 1996.
Interest Expense. Interest expense was $369,000 in the three months ended
September 30,1996 compared to $224,000 in the three months ended October 1,
1995.
Income Taxes. The Company's effective tax rate was 39.0% in the three months
ended September 30, 1996 compared to 38.7% in the three months ended October 1,
1995.
Pro Forma Net Income. As a result of the foregoing, pro forma net income
increased $8.4 million, or 262.3%, to $11.6 million in the three months ended
September 30, 1996, from $3.2 million in the three months ended October 1, 1995.
Pro forma net income as a percentage of revenues, increased to 5.3% in the three
months ended September 30, 1996, from 3.8% in the three months ended October 1,
1995.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED OCTOBER 1,
1995.
Revenues. Revenues increased $331.7 million, or 149.7%, to $553.3 million in
the nine months ended September 30, 1996 from $221.6 million in the nine months
ended October 1, 1995. The increase was attributable by division to:
Professional Services, $229.8 million, or an increase of 664.2%; Commercial,
$93.4 million, or an increase of 82.8%; and Telecommunications, $8.5 million, or
an increase of 11.4%. Of the increase in the Professional Services division,
$205.7 million was attributable to acquisitions in the information technology
and technical service lines, while the remaining $24.1 million was attributable
to acquisitions in the legal and accounting service lines and internal growth.
Of the increase in the Commercial division, $71.2 million was from four
significant acquisitions, Excel, $28.1 million; Matthews Professional Employment
Specialists, Inc., $9.9 million; HR Management, $15.5 million; and TempsAmerica,
$17.7 million. The remaining $22.2 million was attributable to internal growth
and less significant acquisitions. The increase in the Telecommunications
division was due to internal growth.
Gross Profit. Gross profit increased $78.6 million, or 194.8%, to $118.9
million in the nine months ended September 30, 1996 from $40.3 million in the
nine months ended October 1, 1995. The overall gross profit as a percentage of
sales increased from 18.2% to 21.5%, due to the increase in the revenue from
the Professional Services division which produces a higher gross profit. Gross
profit as a percentage of sales increased by 140 basis points to 21.4% in the
Commercial division, due to an overall increase in the division's gross profit
including existing and acquired companies, while decreasing by 510 basis points
to 25.2% in the Professional Services division, due primarily to the
acquisitions of certain technical service companies which generate lower margins
12
<PAGE>
compared to the types of services which were provided by the Company's
Professional Services division in the nine months ended October 31, 1995. Gross
profit as a percentage of sales in the Telecommunications division decreased by
10 basis points to 9.8%.
Operating Expenses. Operating expenses increased $50.6 million, or 181.1%, to
$78.6 million in the nine months ended September 30, 1996 from $28.0 million in
the nine months ended October 1, 1995. Operating expenses as a percentage of
revenues increased to 14.7% in the nine months ended September 30, 1996 from
12.6% in the nine months ended October 1, 1995. The increase is attributable to
the increase in depreciation and amortization expense and an increase in the mix
of professional services being provided by the Company in comparison to
Commercial division and Telecommunication division services. Higher operating
expenses are required to operate the Professional Services division compared to
the Commercial and Telecommunications divisions
Income from Operations. Income from operations increased $27.9 million, or
225.7%, to $40.3 million in the nine months ended September 30, 1996, from $12.4
million in the nine months ended October 1, 1995. Income from operations as a
percentage of revenues increased to 6.8% in the nine months ended September 30,
1996, from 5.6% in the nine months ended October 1, 1995.
Interest Income. Interest income was $2.8 million for the nine months ended
September 30, 1996 compared to $364,000 for the nine months ended October 1,
1995, due to the interest income obtained from the proceeds of the Company's
April 1996 public offering of common stock.
Interest Expense. Interest expense was $2.3 million for the nine months ended
September 30, 1996 compared to $405,000 for the nine months ended October 1,
1995. The increase is attributable to the utilization of the Company's credit
facility to fund acquisitions completed in 1996 prior to the Company's April
1996 public common stock offering of 1996.
Income Taxes. The Company's effective tax rate was 41.1% in the nine months
ended September 30, 1996 compared to 38.7% in the nine months ended October 1,
1995. The increase was due primarily to non-tax deductible acquisition expenses
of $2.8 million related to the McKinley acquisition, which were recognized in
the second quarter of 1996.
Pro Forma Net Income. As a result of the foregoing, pro forma net income
increased $14.8 million, or 196.1%, to $22.4 million in the nine months ended
September 30, 1996, from $7.6 million in the nine months ended October 1, 1995.
Pro forma net income as a percentage of revenues, increased to 4.0% in the nine
months ended September 30, 1996 from 3.4% in the nine months ended October 1,
1995.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are from operations, proceeds of Common
Stock offerings and borrowings under its $150 million revolving credit facility.
The Company's principal uses of cash are to fund acquisitions, working capital
and capital expenditures. The Company generally pays its temporary employees
weekly for their services while receiving payments from customers 35 to 60 days
from the date of invoice. As new offices are established or acquired, or as
existing offices expand, there will be increasing requirements for cash
resources to fund current operations.
During the nine months ended September 30, 1996, the Company experienced a large
increase in accounts receivable which was the primary cause for the decrease in
the Company's net cash provided by operating activities. The increase in
accounts receivable was primarily due to several acquisitions in which the
Company purchased the business operations and certain assets of the acquired
companies, excluding accounts receivable. Therefore, the Company must finance
the acquired companies' initial accounts receivable balances causing a large
increase in accounts receivable. The Company may continue to experience these
temporary fluctuations if any similarly structured acquisitions are completed in
the future. The Company will use either its credit facility or other cash on
hand to fund these temporary operational cash flow needs.
During April 1996, the Company completed an offering of 11.79 million shares of
common stock from which the Company received net proceeds of approximately
$304.7 million. The net proceeds have been used, in part, to repay $92.8
million in outstanding indebtedness under the Company's revolving credit
facility, while an additional $81.5 was used to fund acquisitions and for other
general corporate purposes through September 30, 1996. As of September 30,
1996, the Company had $130.4 million in cash and cash equivalents which are
available for other general corporate purposes, including possible acquisitions.
The Company is obligated under various acquisition agreements to make earn-out
payments to former stockholders of acquired companies over the next five years.
The Company cannot currently estimate the total amount of these payments;
however, the Company anticipates that the cash generated by the operations of
the acquired companies will provide a substantial part of the capital required
to fund the earn-out payments.
The Company anticipates that improvements to its management information and
operating systems will require capital expenditures during the next twelve
months of approximately $3.4 million. The Company anticipates recurring capital
expenditures in future years to be approximately $1.5 million per year.
The Company believes that funds provided by operations, available borrowings
under the credit facility and current amounts of cash will be sufficient to meet
14
<PAGE>
its presently anticipated needs for working capital expenditures and
acquisitions for at least the next 12 months.
INDEBTEDNESS OF THE COMPANY
On May 2, 1996, the Company's revolving credit facility was amended and
restated to increase the available line from $100 million to $150 million in
connection with the syndication of the facility. The facility was syndicated to
a group of 13 banks, with NationsBank, N.A. as agent. The facility has a term
of five years expiring February 1, 2001. Outstanding amounts under the facility
bear interest at floating rates. The facility contains certain affirmative and
negative covenants relating to the Company's operations, including a provision
requiring approval by the lenders holding not less than two-thirds of the credit
exposure under the facility for any business acquisitions if the cost of the
acquisition exceeds the lesser of $20 million or 10% of the Company's
consolidated stockholders' equity. As of September 30, 1996, the Company had no
outstanding borrowings under the facility.
The Company has certain notes payable to shareholders of acquired companies.
The notes payable bear interest at rates ranging from 5% to 8% and have
repayment terms from June 1996 to March 1999. As of September 30, 1996, the
Company owed approximately $19.5 million in such acquisition indebtedness.
The company has outstanding $1.0 million of 6% Convertible Subordinated
Debentures outstanding which are convertible into Common Stock at $1.38 per
share. The debentures mature in January 1997 and are not redeemable.
INFLATION
The effects of inflation on the Company's operations were not significant during
the periods presented in the financial statements. Generally, throughout the
periods discussed above, the increases in revenue have resulted primarily from
higher volumes, rather than price increases.
OTHER MATTERS
In 1996, the Company will adopt SFAS No. 123, "Accounting for Stock-Based
Compensation." This standard establishes a fair value method of accounting for
stock-based compensation plans, either through recognition or disclosure. The
Company intends to adopt this standard by disclosing the pro forma net income
and earnings per share amounts assuming the fair value method was adopted on
January 1, 1995. The adoption of this standard will not impact results of
operations, financial positions or cash flow.
STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Form 10-Q contains certain forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
15
<PAGE>
from the results anticipated in these forward-looking statements as a result of
certain of the factors set forth under "Risk Factors" and elsewhere in the
Company's Prospectus dated April 18, 1996.
PART II OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS.
2.1 Agreement and Plan of Merger by and among AccuStaff Incorporated,
Sunrise Merger Corporation and Career Horizons, Inc. dated August
25, 1996, incorporated by reference to the Company's Form 8-K
dated August 25, 1996.
10.1 Purchase Agreement between Payroll Transfers, Inc. and AccuStaff
Incorporated dated August 8, 1996.
10.2 Option Agreement between AccuStaff Incorporated and Payroll
Transfers, Inc. dated August 8, 1996.
10.3 8% Subordinated Convertible Note due August 8, 1996, made by
Payroll Transfers, Inc. in favor of AccuStaff Incorporated.
10.4 Strategic Relationship Agreement between AccuStaff Incorporated
and Payroll Transfers, Inc. dated August 8, 1996.
10.5 Registration Rights Agreement between AccuStaff Incorporated and
Payroll Transfers, Inc. dated August 8, 1996.
11 Calculation of Per Share Earnings.
27 Financial Data Schedule.
(b) Reports on Form 8-K. The Company filed the following reports on Form
8-K with the Securities and Exchange Commission during the quarter ended
September 30, 1996:
Form 8-K dated June 19, 1996 relating to the acquisition of The
McKinley Group, Inc. and MGI Services, Inc.
16
<PAGE>
Form 8-K/A dated June 19, 1996 relating to the acquisition of The
McKinley Group, Inc. containing the following financial statements for
The McKinley Group, Inc.
Report of Independent Accountants
Combined Balance Sheet as of September 30, 1995 and 1994
Combined Statements of Operations for the Years Ended
September 30, 1995 and 1994
Combined Statement of Changes in Stockholders' Equity for the
Years Ended September 30, 1995 and 1994
Notes to Financial Statements
Combined Balance Sheet as of June 30, 1996 (unaudited)
Combined Statements of Operations for the Six Months Ended
June 30, 1995 and 1996 (unaudited)
Combined Statements of Cash Flows for the Six Months Ended
June30, 1995 and 1996 (unaudited)
Notes to Interim Financial Statements
Pro Forma Financial Information
Introduction to Pro Forma Unaudited Combined Financial
Information
Pro Forma Combined Statement of Operations for the Year Ended
December 31, 1995 (unaudited)
Pro Forma Combined Statement of Operations for the Six Months
Ended June 30, 1996 (unaudited)
Notes to Unaudited Pro Forma Combined Statement of Operations
Form 8-K dated August 26, 1996 relating to the Agreement and Plan of
Merger by and among AccuStaff Incorporated, Sunrise Merger Corporation
and Career Horizons, Inc.
Form 8-K dated September 16, 1996, relating to certain financial
statements of AccuStaff Incorporated as restated to give effect to the
acquisition of The McKinley Group, Inc. This current Report contained
the following AccuStaff Incorporated financial statements:
Consolidated Balance Sheets as of December 31, 1995 and
January 1, 1995
Consolidated Statements of Income for the Years Ended
December 31, 1995, January 1, 1995 and January 2, 1994
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1995, January 1, 1995 and January 2, 1994
17
<PAGE>
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, January 1, 1995 and January 2, 1994
Notes to Consolidated Financial Statements
Form 8-K dated September 16, 1996, relating to the financial statements
of certain companies previously acquired by AccuStaff. The financial
statements filed for each of the acquired companies are listed below:
HNS Software, Inc.
Report of Independent Accountants
Balance Sheet as of December 31, 1995
Statement of Income for the Year Ended December 31, 1995
Statement of Changes in Stockholders' Equity for the Year Ended
December 31, 1995
Statement of Cash Flows for the Year Ended December 31 ,1995
Notes to Financial Statements
Openware Technologies, Inc.
Report of Independent Accountants
Balance Sheet as of December 31, 1995
Statement of Operations for the Year Ended December 31, 1995
Statement of Changes in Stockholders' Equity for the Year Ended
December 31, 1995
Statement of Cash Flows for the Year Ended December 31, 1995
Notes to Financial Statements
Staffware, Inc.
Report of Independent Accountants
Balance Sheet as of December 31, 1995
Statement of Income for the Year Ended December 31, 1995
Statement of Changes in Stockholders' Equity for the Year Ended
December 31, 1995
Statement of Cash Flows for the Year Ended December 31 ,1995
Notes to Financial Statements
Datacorp Business Systems, Inc.
Report of Independent Accountants
Balance Sheet as of December 31, 1995
Statement of Income for the Year Ended December 31, 1995
Statement of Changes in Stockholders' Equity for the Year Ended
December 31, 1995
Statement of Cash Flows for the Year Ended December 31 ,1995
Notes to Financial Statements
Career Enhancement International, Inc.
Independent Auditor's Report
18
<PAGE>
Balance Sheet as of December 31, 1995
Statement of Income for the Year Ended December 31, 1995
Statement of Changes in Stockholder's Equity for the Year Ended
December 31, 1995
Statement of Cash Flows for the Year Ended December 31 ,1995
Notes to Financial Statements
Perspective Technology Corporation
Independent Auditors' Report
Balance Sheet as of December 31, 1995
Statement of Income for the Year Ended December 31, 1995
Statement of Changes in Stockholders' Equity for the Year Ended
December 31, 1995
Statement of Cash Flows for the Year Ended December 31 ,1995
Notes to Financial Statements
Unaudited Interim Financial Information of Insignificant
Subsidiaries
Balance Sheet as of June 30, 1996 (Unaudited)
Statement of Income for the Six Months Ended June 30, 1996
(unaudited)
Statement of Cash Flows for the Six Months Ended June 30, 1996
(unaudited)
Unaudited Pro Forma Information
Introduction to Unaudited Pro Forma Financial Information
Pro Forma Combined Balance Sheets as of June 30, 1996
(unaudited)
Notes to Pro Forma Combined Balance Sheet (unaudited)
Pro Forma Combined Statement of Income for the Six Months Ended
June 30, 1996 (unaudited)
Pro Forma Combined Statement of Income for the Year Ended June
30, 1996 (unaudited)
Notes to Unaudited Pro Forma Combined Statements of Income
(unaudited)
19
<PAGE>
ACCUSTAFF INCORPORATED AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
ACCUSTAFF INCORPORATED
November 12, 1996 /S/ Derek E. Dewan
---------------------------------------
DEREK E. DEWAN
Chairman, President and Chief Executive
Officer
November 12, 1996 /S/ Michael D. Abney
---------------------------------------
MICHAEL D. ABNEY
Senior Vice President and Chief
Financial Officer
20
<PAGE>
EXHIBIT 10.1
PURCHASE AGREEMENT
------------------
PURCHASE AGREEMENT, dated as of August 8, 1996 (this "Agreement"),
---------
between Payroll Transfers, Inc., a Florida corporation (the "Company"), and
-------
AccuStaff Incorporated, a Florida corporation (the "Purchaser, and together with
---------
the Company, the "Parties").
-------
WHEREAS, the Company proposes to sell to the Purchaser and the Purchaser
wishes to acquire, for an aggregate purchase price of $10,438,402, (i) the Note
(as defined below), and (ii) the Option (as defined below); and
WHEREAS, the Parties wish to set forth their agreements with respect to
such purchase and sale and certain other matters specified herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
-----------
1.1 Definitions. As used in this Agreement, and unless the context
-----------
requires a different meaning, the following terms have the meanings indicated:
"Affiliate" means, with respect to any person, any other person
---------
controlling, controlled by or under common control with such person.
"Asserted Liability" has the meaning set forth in Section 6.3 of this
------------------
Agreement.
"Business Day" means any day other than a Saturday, Sunday or other day
------------
on which commercial banks in the State of New York are authorized or required by
law or executive order to close.
"Buyout Notice" has the meaning set forth in Section 5.4 of this
-------------
Agreement.
"Claims Notice" has the meaning set forth in Section 6.3 of this
-------------
Agreement.
<PAGE>
"Closing" has the meaning set forth in Section 2.2 of this Agreement.
-------
"Closing Date" means the date specified in Section 2.2 of this Agreement.
------------
"Common Stock" means the Common Stock, par value $1.00 per share, of the
------------
Company.
"Condition of the Company" means the assets, business, properties,
------------------------
operations or financial condition of the Company and its Subsidiaries, taken as
a whole.
"Contractual Obligations" means as to any Person, any provision of any
-----------------------
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument to which such Person is a
party or by which it or any of its property is bound.
"Governmental Authority" means the government of the United States, any
----------------------
state, city, locality or other political subdivision thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by any of
the foregoing.
"Indemnified Parties" has the meaning set forth in Section 5.6 of this
-------------------
Agreement.
"Indemnifying Party" has the meaning set forth in Section 6.3 of this
------------------
Agreement.
"Indemnitee" has the meaning set forth in Section 6.3 of this Agreement.
----------
"Last-Chance Notice" has the meaning set forth in Section 5.4 of this
------------------
Agreement.
"Losses" has the meaning set forth in Section 6.1 of this Agreement.
------
"Non-Participating Stockholder" has the meaning set forth in Section 5.4
-----------------------------
of this Agreement.
"Note" has the meaning set forth in Section 2.1 of this Agreement.
----
"Notice Period" has the meaning set forth in Section 5.4 of this
-------------
Agreement.
"Offer Price" has the meaning set forth in Section 5.4 of this Agreement.
-----------
2
<PAGE>
"Offered Securities" has the meaning set forth in Section 5.4 of this
------------------
Agreement.
"Offeree Securities" has the meaning set forth in Section 5.4 of this
------------------
Agreement.
"Offering Notice" has the meaning set forth in Section 5.4 of this
---------------
Agreement.
"Option" has the meaning set forth in Section 2.1 of this Agreement.
------
"Option Agreement" has the meaning set forth in Section 2.1 of this
----------------
Agreement.
"Participating Stockholder" has the meaning set forth in Section 5.4 of
-------------------------
this Agreement.
"Permitted Transferee" shall mean (i) with respect to any Person, any
--------------------
Affiliate of such Person and (ii) with regard to the owners of interests in the
Stockholder only, any other such owner of the Stockholder on the date hereof.
"Person" means any individual, firm, corporation, limited liability
------
company, partnership, trust, incorporated or unincorporated association, joint
venture, joint stock company, Governmental Authority or other entity of any
kind, and shall include any successor (by merger or otherwise) of such entity.
"Purchase Price" has the meaning set forth in Section 2.1 of this
--------------
Agreement.
"Remaining Offered Securities" has the meaning set forth in Section 5.4
----------------------------
of this Agreement.
"Requirements of Law" means as to any Person, any law, treaty, rule,
-------------------
regulation, right, privilege, qualification, license or franchise or
determination of an arbitrator or a court or other Governmental Authority, in
each case applicable or binding upon such Person or any of its property or to
which such Person or any of its property is subject or pertaining to any or all
of the transactions contemplated or referred to herein.
"Selling Stockholder" has the meaning set forth in Section 5.4 of this
-------------------
Agreement.
3
<PAGE>
"Stockholder" has the meaning set forth in Section 5.4 of this Agreement.
-----------
"Subject Securities" has the meaning set forth in Section 5.4 of this
------------------
Agreement.
"Subsidiaries" means Payroll Transfers Florida, Inc., Payroll Transfers
------------
International, Inc., Payroll Transfers Management, Inc., Payroll Benefits, Inc.
and Payroll Transfers Interstate, Inc., each, a Florida corporation, and Payroll
Transfers of Georgia, Inc., a Georgia corporation and Payroll Transfers, Inc., a
California corporation.
"Tag-Along Offer" has the meaning set forth in Section 5.4 of this
---------------
Agreement.
"Third Party Purchaser" has the meaning set forth in Section 5.4 of this
---------------------
Agreement.
"Transaction Documents" means collectively, this Agreement and the other
---------------------
documents prepared in connection with the transaction contemplated by this
Agreement.
1.2 Knowledge of the Company. All references to the "knowledge of the
------------------------
Company" shall mean the actual knowledge of any senior officer of the Company or
any materials in files in their personal custody.
ARTICLE 2
PURCHASE AND SALE OF NOTE AND GRANT OF OPTION
---------------------------------------------
2.1 Purchase and Sale of Note and Grant of Option. Simultaneously with
---------------------------------------------
the execution and delivery of this Agreement, the Purchaser agrees to pay the
Company, in cash, an aggregate amount equal to $10,438,402 (the "Purchase
--------
Price") payable in accordance with Section 2.2, in consideration for which the
Company agrees to issue to the Purchaser (i) a Subordinated Convertible Note,
having the terms and conditions in the form of Exhibit A hereto (the "Note") and
----
(ii) a currently exercisable option to purchase an additional 176 shares of
Common Stock for an aggregate exercise price of $18,728,909 (the "Option"),
------
pursuant to an option agreement in the form of Exhibit B hereto (the "Option
------
Agreement").
- ---------
2.2 Closing. The closing of the sale and purchase of the Note and the
-------
grant of the Option contemplated hereby (the "Closing") shall take place on the
-------
date hereof at the offices of Paul, Weiss, Rifkind, Wharton & Garrison, 1285
Avenue of the Americas, New York, New York 10019 at 10:00 a.m. local time. At
the Closing, (i) the Purchaser shall pay by wire transfer of immediately
available funds in an aggregate amount equal to the Purchase Price to an account
4
<PAGE>
designated in writing by the Company, (ii) the Company shall deliver to the
Purchaser the Note and shall deliver to the Purchaser the executed Option
Agreement and (iii) the Company and the Purchaser shall execute and deliver the
Strategic Relationship Agreement in the form of Exhibit C hereto and the
Registration Rights Agreement in the form of Exhibit D hereto.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
------------------------------
The Company represents and warrants to the Purchaser, as follows:
3.1 Corporate Existence and Power. The Company (a) is a corporation
-----------------------------
duly organized, validly existing and in good standing under the laws of the
State of Florida; (b) has all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now being and
heretofore conducted; and (c) is duly qualified as a foreign corporation,
licensed and in good standing under the laws of each jurisdiction in which its
ownership or the conduct of its business requires such qualification, except to
the extent that the failure to do so or be so would not have a material adverse
effect on the Condition of the Company. The Company has the requisite corporate
power and authority to execute, deliver and perform its obligations under this
Agreement and each of the other Transaction Documents to which it is a party.
3.2 Corporate Authorization; No Contravention. The execution, delivery
-----------------------------------------
and performance by the Company of this Agreement and each of the other
Transaction Documents to which it is a party and the transactions contemplated
hereby and thereby, including, without limitation, the sale, issuance and
delivery of the Note (a) have been duly authorized by all necessary corporate
action of the Company; (b) do not contravene the terms of the Articles of
Incorporation or Bylaws, or any amendment of either thereof, and (c) do not
violate, conflict with or result in any breach or contravention of or the
creation of any lien or other encumbrance under, any Contractual Obligation of
the Company, or any Requirement of Law applicable to the Company, except for
such violation, conflict, breach, contravention or lien or other encumbrance
which would not have a material adverse effect on the Condition of the Company.
3.3 Binding Effect. This Agreement and each of the other Transaction
--------------
Documents to which the Company is a party have been duly executed and delivered
by the Company and constitute the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with their terms, except
5
<PAGE>
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or similar laws
affecting the enforce ment of creditors' rights generally and by general
principles of equity relating to enforceability (regardless of whether
considered in a proceeding at law or in equity).
3.4 Capitalization. After giving effect to the transactions
--------------
contemplated hereby, the authorized capital stock of the Company consists of
7,500 shares of Common Stock, of which 1,273 shares are issued and outstanding
and 316 shares are reserved for issuance upon conversion of the Note and
exercise of the Option and 211 shares are reserved for issuance pursuant to
incentive stock agreements with management and a consultant/former stockholder
of the Company. All of the outstanding shares of Common Stock are duly
authorized, validly issued, fully paid and nonassessable. Except as set forth
in this Section 3.4, to the knowledge of the Company, there are no options,
warrants, conversion privileges or other rights presently outstanding to
purchase or otherwise acquire any authorized but unissued shares of Common Stock
and the Company is under no obligation (whether contingent or otherwise) to
issue, call, repurchase, redeem or transfer any securities of the Company. The
Note issued to the Purchaser hereunder, and the shares of Common Stock, when
issued upon conversion of the Note or exercise of the Option will be duly
authorized, validly issued, fully paid and nonassessable.
3.5 Authority to Execute and Perform Agreement; No Breach. The execution
-----------------------------------------------------
and delivery by the Company of this Agreement and each Transaction Agreement to
which the Company is or will be a party, the consummation of the transactions
contemplated hereby and thereby will not (a) require the Company to obtain any
consent, approval, authorization or action of any Governmental Authority or any
other person; (b) violate, conflict with or result in the breach of any of the
terms and conditions of, result in a material modification of the effect of,
otherwise cause the termination of or give any other contracting party the right
to terminate, or constitute (or with notice or lapse of time or both would
constitute) a default under any contracts to which the Company and its
Subsidiaries or any of their respective properties is or may be bound or
subject; (c) violate any law or order of any Governmental Authority applicable
to the Company and its Subsidiaries or any of their respective properties; (d)
violate any provision of the Certificate of Incorporation or By-laws (or
comparable instruments) of the Company and its Subsidiaries, except in the case
of clauses (a), (b) and (c), as would not have a material adverse effect on the
Condition of the Company.
3.6 Certain Documents. The Company has delivered to the Purchaser true
-----------------
and correct copies of the (i) the Combined Balance Sheets of the Company and its
Subsidiaries as of December 31, 1995 and 1994 and the related Combined
Statements of Operations, Stockholders' Equity and Cash Flows for the years then
ended, including the footnotes thereto, with the accompanying, unqualified
6
<PAGE>
report of KPMG Peat Marwick LLP, independent certified accountants, and (ii) the
Company's Articles of Incorporation and By-laws, in each case amended to the
date hereof.
ARTICLE 4
REPRESENTATIONS AND
WARRANTIES OF THE PURCHASER
---------------------------
The Purchaser hereby represents and warrants to the Company as follows:
4.1 Existence and Power. The Purchaser is a corporation duly organized
-------------------
and validly existing under the laws of the State of Florida and has all
requisite power and authority to execute, deliver and perform its obligations
under this Agreement and each of the other Transaction Documents to which it is
a party.
4.2 Authorization; No Contravention. The execution, delivery and
-------------------------------
performance by the Purchaser of this Agreement and each of the other Transaction
Documents to which it is a party and the transactions contemplated hereby and
thereby, including, without limitation, the purchase of the Note, (a) has been
duly authorized by all necessary action, (b) does not contravene the terms of
the Purchaser's organizational documents, or any amendment thereof, and (c) does
not violate, conflict with or result in any breach or contravention of or the
creation of any lien or other encumbrance under, any Contractual Obligation of
the Purchaser, or any Requirement of Law applicable to the Purchaser.
4.3 Governmental Authorization; Third Party Consents. No approval,
------------------------------------------------
consent, compliance, exemption, authorization, or other action by, or notice to,
or filing with, any Governmental Authority or any other Person in respect of any
Requirement of Law, is necessary or required in connection with the execution,
deliv ery or performance (including, without limitation, the purchase of the
Note) by the Purchaser of the Transaction Documents to which the Purchaser is a
party or the transactions contemplated hereby.
4.4 Binding Effect. This Agreement and each of the other Transaction
--------------
Documents to which the Purchaser is a party have been duly executed and
delivered by the Purchaser and constitute the legal, valid and binding
obligation of the Purchaser, enforceable against it in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance or transfer, moratorium or
similar laws affecting the enforce ment of creditors' rights generally or by
equitable principles relating to enforceability (regardless of whether
considered in a proceeding at law or in equity).
7
<PAGE>
4.5 Purchase Entirely for Own Account. The Note to be purchased by the
---------------------------------
Purchaser hereunder (and the shares of Common Stock issuable upon the exercise
of the Note and the Option) will be acquired for investment for the Purchaser's
own account, not as nominee or agent, and not with a view to or for sale in
connection with any distribution of any part thereof, and the Purchaser has no
present intention of selling, granting any participation in, or otherwise
distributing the same. The Purchaser does not have any contract, undertaking,
agreement or arrangement with any Person to sell, transfer or grant
participations to any Person, with respect to the Note and the Option.
4.6 Restricted Securities. The Purchaser understands that the Note and
---------------------
the shares of Common Stock issuable upon the exercise of the Note and the Option
are characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act only
in certain limited circumstances. In this connection the Purchaser represents
that it is familiar with the Commission's Rule 144, as presently in effect, and
understands the resale limitations imposed thereby and by the Securities Act.
4.7 Financial Risk. The Purchaser has the financial ability to bear the
--------------
substantial economic risks of an investment in the Company for an indefinite
period of time and can afford a complete loss of such investment. The Purchaser
has such knowledge and experience in financial, investment and business matters
to utilize the information made available to the Purchaser in connection with
the transactions contemplated in this Agreement (the "Transactions"), to
------------
evaluate the merits and risks associated with the Transactions and to make an
informed investment decision with respect thereto.
4.8 Legends. To the extent applicable, the Note issued hereunder shall
-------
be endorsed with the legend set forth below, and the Purchaser covenants that,
except to the extent such restrictions are waived by the Company, the Purchaser
shall not transfer the securities without complying with the restrictions on
transfer described in the legend endorsed thereon:
"THIS NOTE HAS NOT BEEN REGISTERED UNDER APPLICABLE STATE OR FEDERAL
SECURITIES LAWS AND MAY NOT BE SOLD OR OFFERED FOR SALE UNLESS REGISTERED
PURSUANT TO SUCH LAWS OR UNLESS IN THE OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE ISSUER AN EXEMPTION FROM REGISTRATION IS AVAILABLE. THIS
NOTE IS SUBORDINATED AS PROVIDED IN SECTION 6 HEREOF AND THE TRANSFER OF THIS
8
<PAGE>
NOTE IS RESTRICTED BY THE PURCHASE AGREEMENT, DATED AUGUST 8, 1996, BETWEEN
PAYROLL TRANSFERS, INC. AND ACCUSTAFF INCORPORATED, A COPY OF WHICH IS ON FILE
AT THE OFFICE OF THE ISSUER OF THIS NOTE."
The Company shall not be required (i) to transfer on its books the Note,
if such Note has been transferred in violation of any of the provisions set
forth in this Agreement, or (ii) to treat as owner of such Note or to pay
interest to any transferee to whom such Note shall have been so transferred.
ARTICLE 5
COVENANTS AND AGREEMENTS
------------------------
5.1 Use of Cash Proceeds. The Company shall reinvest in its business
--------------------
and operations or invest in short-term securities or other investments for (i)
at least one year from the Closing Date, the Purchase Price and (ii) for at
least one year from the date of exercise of the Option, the proceeds received
upon exercise of the Option.
5.2 Open Market Purchases. The Company and/or its designees will
---------------------
purchase a number of shares of the Purchaser's common stock, par value $.01 per
share, representing an aggregate of $3 million dollars in value, in the open
market over a reasonable period of time (but in any event no later than 60 days
following the Closing Date), subject to applicable securities laws and
disclosure requirements. The Company and the Purchaser hereby agree that such
shares will not be subject to any lock-up agreement or other agreement
restricting transferability or sale.
5.3 Board Positions. The Company and the Purchaser hereby agree that
---------------
(i) at least one representative of one of the stockholders of the Company,
designated in writing by the Company, shall be appointed by the Board of
Directors of the Purchaser to serve as a director of the Purchaser, if the
Purchaser so elects within 60 days of the Closing and (ii) that the Purchaser
shall be entitled to designate, within 60 days of the Closing, one
representative to the Company's Board of Directors (who shall be Derek E. Dewan,
President and Chief Executive Officer of the Purchaser, as long as Mr. Dewan is
employed by the Purchaser); provided, that such right shall terminate at the
--------
earliest to occur of (a) an initial public offering of the Company's Common
Stock, (b) ten (10) years from the date hereof or (c) if at any time from and
after July 29, 1997 the Purchaser does not own at least 15% of the outstanding
Common Stock.
5.4 Right of First Offer, Tag-Along Right and Bring-Along Right.
-----------------------------------------------------------
(a) Right of First Offer.
--------------------
9
<PAGE>
(i) Offering Notice. In the event that either PTI Investor Co.,
---------------
L.L.C. or any of the owners of such limited liability company (the
"Stockholder") or the Purchaser (each a "Selling Stockholder") shall desire to
----------- -------------------
sell the Note, in the case of the Purchaser, or any shares of Common Stock now
owned or hereinafter acquired, including, without limitation, any shares of
Common Stock received upon conversion of the Note or exercise of the Option
(collectively, the "Subject Securities") to any Person other than a Permitted
Transferee thereof (a "Third Party Purchaser"), then such Selling
---------------------
Stockholder(s) shall first offer the other Selling Stockholders (the "Offeree
-------
Stockholders") the right to purchase such Subject Securities (the "Offered
- ------------ -------
Securities") by sending written notice (the "Offering Notice") to the Company
- ---------- ---------------
and the Offeree Stockholders, which notice shall (A) state the number of Offered
Securities, (B) state the proposed purchase price for such Offered Securities
(the "Offer Price") and all other material terms and conditions of such sale and
-----------
(C) if applicable, be accompanied by any written offer from the Third Party
Purchaser; provided, however, that the Selling Stockholder(s) shall not be
-------- -------
obligated to make such offer to the other Selling Stockholders if they elect to
deliver a Buyout Notice (as defined below) pursuant to Section 5.4(c) hereof.
Upon delivery of the Offering Notice, the offer made therein to the Offeree
Stockholders shall be irrevocable unless and until the first offer rights
provided for therein shall have been waived or shall have expired in accordance
with this Agreement.
(ii) Purchase Option. Subject to Section 5.4(a)(iv), each Offeree
---------------
Stockholder shall have the right, but not the obligation, to purchase at the
Offer Price (and otherwise upon the same terms and conditions as those set forth
in the Offering Notice) its pro rata portion of the Offered Securities, in the
proportion that the number of shares of Common Stock owned by such Offeree
Stockholder bears to the total number of shares of Common Stock owned by all
Offeree Stockholders. Such right of each Offeree Stockholder shall be
exercisable by written notice to the Selling Stockholder(s) with copies to the
Company given within 15 days after receipt of the Offering Notice (the "Notice
------
Period"). Failure by an Offeree Stockholder to respond within the Notice Period
- ------
shall be regarded as a rejection of the offer made pursuant to the Offering
Notice. Each Offeree Stockholder that elects to purchase its full pro rata
portion of the Offered Securities is referred to as a "Participating
-------------
Stockholder" and each Offeree Stockholder that does not elect to purchase its
- -----------
full pro rata portion of the Offered Securities is referred to as a "Non-
---
Participating Stockholder."
- -------------------------
(iii) Purchase of Remaining Offered Securities. The Selling
----------------------------------------
Stockholder(s) shall, promptly after the end of the Notice Period, notify (the
"Last-Chance Notice") all Participating Stockholders whether the Offered
------------------
Securities have been fully subscribed for, and, if not, the number of Offered
Securities not subscribed for (the "Remaining Offered Securities"). Subject to
----------------------------
Section 5.4(a)(iv), each Participating Stockholder shall have the right to
purchase all, but not less than all, of the Remaining Offered Securities. The
10
<PAGE>
right of each Participating Stockholder to purchase the Remaining Offered
Securities shall be exercisable by written notice delivered to the Selling
Stockholder, with a copy to the Company, given within ten days after receipt of
the Last-Chance Notice. If more than one Participating Stockholder timely elects
to exercise its right to purchase the Remaining Offered Securities, the right to
purchase the Remaining Offered Securities shall (unless the Participating
Stockholders shall otherwise agree) be allocated pro rata among those
Participating Stockholders electing to purchase the Remaining Offered
Securities, in a proportion that the number of shares of Common Stock owned by
such Participating Stockholder bears to the total number of shares of Common
Stock owned by all Participating Stockholders that elect to purchase the
Remaining Offered Securities. A failure of any Participating Stockholder to
exercise such right within such 10-day period shall be regarded as a waiver of
its right to purchase the Remaining Offered Securities as provided herein.
(iv) Failure to Purchase All Offered Securities. Notwithstanding
------------------------------------------
anything in this Section 5.4 to the contrary, the right of the Offeree
Stockholders to purchase the Offered Securities pursuant to this Section 5.4
shall be exercisable only if the Offeree Stockholders collectively agree to
purchase all, but not less than all, of the Offered Securities.
(v) Closing of the Sale to Participating Stockholders. The closing of
-------------------------------------------------
the purchase of Offered Securities by the Offeree Stockholders herein shall be
held at the principal office of the Company at 11:00 a.m., local time, on the
20th day after the giving of the Last-Chance Notice (or, if each of the Offeree
Stockholders agrees to purchase its pro rata portion of the Offered Securities,
then on the 30th day following the date of the Offering Notice), or at such
other time and place as the parties to the transaction may agree. The sale of
the Offered Securities to the Offeree Stockholders hereunder shall otherwise be
on customary terms and conditions (but in any event in accordance with the terms
of the Offering Notice).
(vi) Sale to Third Party Purchaser. Unless the Offeree Stockholders
-----------------------------
elect to purchase all of the Offered Securities pursuant to Section 5.4(a)(ii)
and Section 5.4(a)(iii), the Selling Stockholder(s) may, subject to Sections
5.4(b) hereof, sell all but not less than all, of the Offered Securities at a
price per share equal to the Offer Price and otherwise on terms and conditions
that, in the good-faith determination of the Selling Stockholder(s), are in the
aggregate not materially more or less favorable to the Third Party Purchaser
than the terms and conditions set forth in the Offering Notice and the written
offer, if any, delivered therewith pursuant to Section 5.4(a)(i) (after giving
effect to customary negotiations between the Selling Stockholders and the Third
Party Purchaser). Any such sale shall be bona fide and made within 90 days of
the date of the Last-Chance Notice (or, if each of the Offeree Stockholders
11
<PAGE>
agrees to purchase its pro rata portion of the Offered Securities, then within
90 days of the Offering Notice). In the event that such sale is not consummated
within such 90-day period for any reason, then the restrictions pro vided for
herein shall again become effective, and no transfer of such Offered Securities
may be made thereafter by the Selling Stockholder(s) without again offering the
same to the Offeree Stockholders in accordance with this Section 5.4(a).
(b) Tag-Along Right. In the event that the sale by one or more
---------------
Selling Stockholders of Offered Securities pursuant to Section 5.4(a) hereof
(other than sales to Permitted Transferees) would, when aggregated with all
prior sales pursuant to Section 5.4(a) by such Selling Stockholder(s) and their
Affiliates, result in the sale of 20% or more of the Subject Securities held by
such Selling Stockholder(s) on the date hereof (for purposes of this
determination, all Subject Securities sold or transferred pursuant to this
Section 5.4 shall be deemed to be held by the stockholder who holds such Subject
Securities on the date hereof), then such Selling Stockholder(s) shall, unless
such sale is subject to a Bring-Along Notice pursuant to Section 5.4(c) hereof,
include an offer (a "Tag-Along Offer") to each Offeree Stockholder to
---------------
participate pro rata in such sale by including a portion of such Offeree
Stockholder's shares of Common Stock (the exact number of which shall be
determined based on multiplying the number of Offered Securities by a fraction,
(i) the numerator of which is the total number of shares of Common Stock
(assuming conversion of the Note) then owned by such Offeree Stockholder and
(ii) the denominator of which is the total number of shares of Common Stock
(assuming conversion of the Note) owned by all Offeree Stockholders plus the
number of shares owned by other stockholders having tag-along rights with
respect to such sale) in the sale, at the Offer Price and otherwise upon the
same terms and conditions of such sale. Upon delivery of the Tag-Along Offer
pursuant to this Section 5.4(b), the offer made therein to the Offeree
Stockholders shall be irrevocable unless and until the rights provided for
therein shall have been waived or shall have expired in accordance with this
Agreement. The right of each Offeree Stockholder to purchase its pro rata
portion of the Offered Securities under this Section 5.4(b) shall be exercisable
by delivering written notice thereof, prior to the expiration of the Notice
Period, to the Selling Stockholder(s), with a copy to the Company. The failure
of such Offeree Stockholder to respond within the Notice Period shall be
regarded as a rejection of the offer to participate in such sale as contemplated
by the Tag-Along Offer and shall be deemed to be a waiver of its rights under
Section 5.4(b). To the extent that such Offeree Stockholder exercises its right
to sell shares of Common Stock pursuant to this Section 5.4(b), the number of
shares of Common Stock proposed to be sold to the Third Party Purchaser by the
Selling Stockholder shall be reduced proportionately.
(c) Bring-Along Right. In the event that the Stockholder (or any
-----------------
owner of the Stockholder) receives a bona fide offer from a Third-Party
Purchaser to purchase (including a purchase by merger) at least 51% of the
number of outstanding shares of Common Stock, the Stockholder may send written
notice to the Purchaser notifying it that it will be required to sell all (but
12
<PAGE>
not less than all) of the Subject Securities in such sale (the "Buyout Notice").
-------------
Upon receipt of a Buyout Notice, the Purchaser shall be obligated to (i) sell
all of the Subject Securities in the transaction (including a sale or merger)
contemplated by the Buyout Notice on the same terms and conditions as the
Stockholders (including payment of its pro rata share of all costs associated
with such transaction) and (ii) otherwise take all necessary action to cause the
consummation of such transaction, including voting the Subject Securities in
favor of such transaction and not exercising any appraisal rights in connection
therewith. The Purchaser further agrees to (A) take all actions (including
executing documents) in connection with the consummation of the proposed
transaction as may reasonably be requested of it by the Stockholders and (B)
appoint the Stockholders as its attorney-in-fact to do the same on its behalf.
In the event a contract with respect to the transaction contemplated by the
Buyout Notice has not been entered into within 90 days of the receipt of the
Buyout Notice, the obligations of the Purchaser hereunder shall terminate.
(d) General. The provisions of this Section 5.4 shall terminate upon
-------
the earlier to occur of (i) the closing of the initial public offering of the
Common Stock or (ii) August 8, 2004.
5.5 Certain Indemnification Rights. The Stockholder agrees that to the
------------------------------
extent the Stockholder recovers any amounts (other than its attorneys fees and
expenses incurred in pursuing any claim) from any of the Sellers, as defined in
and pursuant to that certain Stock Purchase Agreement dated as of May 23, 1996
(the "Stock Purchase Agreement"), by and among the Stockholder, Melvin
------------------------
Klinghoffer and other persons listed on Schedule 1.1 thereto, whether by way of
indemnification pursuant to Section 8.1 thereof or otherwise, the Stockholder
shall contribute such amounts (net of any taxes payable on such amounts) to the
Company as a capital contribution.
5.6 Directors' and Officers' Indemnification and Insurance. When and
------------------------------------------------------
for so long as the Purchaser has a right to designate a member of the Company's
Board of Directors pursuant to Section 5.3 hereof (but in any event within 90
days of the date hereof), the Company shall acquire and maintain directors' and
officers' liability insurance for the Purchaser's representative in the same
form and with the same terms and conditions as such insurance is maintained for
those members of the Board of Directors designated by the Stockholder. The
Company's Articles of Incorporation and By-laws shall indemnify and hold
harmless all directors of the Company (the "Indemnified Parties") against any
-------------------
costs or expenses (including reasonable attorneys' fees), judgments, fines,
losses, claims, damages or liabilities incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to matters
existing or occurring at or prior to the date hereof, whether asserted or
claimed prior to, at or after the date hereof (and the Company shall advance
expenses as incurred to the fullest extent permitted under applicable law
provided the person to whom expenses are advanced provides an undertaking to
13
<PAGE>
repay such advances if it is ultimately determined that such person is not
entitled to indemnification). In addition, the Purchaser's representative shall
be treated in all respects in the same manner as the other members of the
Company's Board of Directors including but not limited to, with respect to
indemnification of directors, availability of information, directors'
compensation and reimbursement of expenses.
5.7 Hart-Scott-Rodino Filing. As soon as practicable following notice
------------------------
from the Purchaser, the Company shall make all necessary filings required under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the rules and regulations promulgated thereunder in connection with the
transactions contemplated hereby.
5.8 Articles and By-laws The Company agrees to cause the amendment of
--------------------
its Articles of Incorporation and By-laws as promptly as practicable after the
date hereof (but in any event within 10 days) to, among other things, delete
Sections 7 and 9 of the Articles of Association and Article XVIII of the By-
laws, to add customary indemnification provisions for officers and directors and
to otherwise provide for the transactions contemplated hereby.
ARTICLE 6
INDEMNIFICATION
---------------
6.1 Obligation of the Company to Indemnify. Subject to the
--------------------------------------
limitations contained in Section 6.4, the Company agrees to indemnify, defend
and hold harmless the Purchaser (and its directors, officers, employees,
affiliates, successors and assigns) from and against all Claims, losses,
liabilities, damages, deficiencies, judgments, assessments, fines, settlements,
costs or expenses (including interest, penalties and fees, expenses and
disbursements of attorneys, experts and consultants) ("Losses") incurred by the
------
indemnified party in any action or proceeding between the indemnifying party and
the indemnified party or between the indemnified party and any third party, or
otherwise based upon, arising out of or otherwise in respect of any inaccuracy
in or any breach of any representation, warranty, covenant or agreement of the
Company contained in this Agreement.
6.2 Obligation of the Purchaser to Indemnify. Subject to the
----------------------------------------
limitations contained in Section 6.4, the Purchaser agrees to indemnify, defend
and hold harmless the Company from and against all Losses based upon, arising
out of or otherwise in respect of any inaccuracy in or any breach of any
representation, warranty, covenant or agreement of the Purchaser contained in
this Agreement or in any Documents delivered by the Purchaser pursuant to this
Agreement.
14
<PAGE>
6.3 Notice and Opportunity to Defend.
--------------------------------
(a) Notice of Asserted Liability. The party making a claim under this
----------------------------
Article 6 is referred to as the "Indemnitee," and the party against whom such
----------
claims are asserted under this Article 6 is referred to as the "Indemnifying
------------
Party." All claims by any Indemnitee under this Article 6 shall be asserted and
- -----
resolved as follows: Promptly after receipt by the Indemnitee of notice of any
Claim or circumstances which, with the lapse of time, would or might give rise
to a Claim or the commencement (or threatened commencement) of a Claim including
any action, proceeding or investigation (an "Asserted Liability") that may
------------------
result in a Loss, the Indemnitee shall give written notice thereof (the "Claims
------
Notice") to the Indemnifying Party. The Claims Notice shall describe the
- ------
Asserted Liability in reasonable detail, and shall indicate the amount
(estimated, if necessary and to the extent feasible) of the Loss that has been
or may be suffered by the Indemnitee.
(b) Opportunity to Defend. Except with respect to actions or
---------------------
proceedings between the Indemnifying Party and the Indemnitee, the Indemnifying
Party may elect to compromise or defend, at its own expense and by its own
counsel, any Asserted Liability. If the Indemnifying Party elects to compromise
or defend such Asserted Liability, it shall within 30 days (or sooner, if the
nature of the Asserted Liability so requires) notify the Indemnitee of its
intent to do so, and the Indemnitee shall cooperate, at the expense of the
Indemnifying Party, in the compromise of, or defense against, such Asserted
Liability. If the Indemnifying Party elects not to compromise or defend the
Asserted Liability, fails to notify the Indemnitee of its election as herein
provided or contests its obligation to indemnify under this Agreement, the
Indemnitee may pay, compromise or defend such Asserted Liability. If the
Indemnifying Party chooses to defend any Asserted Liability, the Indemnitee
shall make available to the Indemnifying Party any books, records or other
documents within its control that are necessary or appropriate for such defense.
6.4 Limitations on Indemnification. Neither the Company nor the
------------------------------
Purchaser shall be obligated to pay any amounts for indemnification under this
Article 6 in excess of the Purchase Price.
ARTICLE 7
MISCELLANEOUS
-------------
7.1 Survival of Representations and Warranties. All of the
------------------------------------------
representations and warranties made herein shall, for a period of one year
following the Closing Date, survive the execution and delivery of this
Agreement, acceptance of the Note or termination of this Agreement.
15
<PAGE>
7.2 Notices. All notices, demands and other communications provided
-------
for, required or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, courier
service, overnight mail, in each case postage prepaid, personal delivery or
facsimile transmission:
if to the Company, to:
Payroll Transfers, Inc.
3710 Corporex Drive
Suite 300
Tampa, Florida 33619
Telephone: (813) 664-0404
Telecopy: (813) 621-6816
Attention: President
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telephone: (212) 373-3000
Telecopy: (212) 757-3990
Attention: Matthew Nimetz, Esq.
if to the Purchaser:
AccuStaff Incorporated
6440 Atlantic Boulevard
Jacksonville, Florida 32211
Telephone: (904) 725-5374
Telecopy: (904) 725-8513
Attention: Derek Dewan, President
with a copy to:
Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Telephone: (404) 881-7000
Telecopy: (404) 881-7777
Attention: Timothy Mann, Esq.
16
<PAGE>
if to PTI Investor Co. LLC or to its owners to:
c/o Oak Hill Partners, Inc.
Park Avenue Tower
65 East 55th Street, 32nd Floor
New York, New York 10022
Telephone: (212) 326-1500
Telecopy: (212) 838-8411
Attention: John R. Monsky, Esq.
All such notices and communications shall be deemed to have been duly
received when delivered by hand, if personally delivered; when delivered by
facsimile, if receipt is confirmed by telephone the same day; when delivered by
courier or overnight mail, if delivered by a commercial courier service or
overnight mail; and 5 Business Days after being deposited in the mail, if
mailed; provided, that in all cases, confirmation by telephone or facsimile of
--------
receipt thereof has been obtained.
7.3 Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and permitted assigns of the parties
hereto. Except in connection with all or substantially all of its assets, the
Company may not assign any of its rights under this Agreement; provided,
--------
however, that subject to applicable securities laws, the Company, upon prior
- -------
written consent of the Purchaser may assign any of its rights under this
Agreement to any of its Stockholders or Affiliates. The Purchaser may not
assign any of its rights under this Agreement, except to a successor-in-interest
to the Purchaser or an Affiliate, without the prior written consent of the
Company.
7.4 Amendment and Waiver.
--------------------
(a) No failure or delay on the part of the Company or the Purchaser in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the Company or
the Purchaser at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any provision
of this Agreement, any waiver of any provision of this Agreement, and any
consent to any departure by the Company or the Purchaser from the terms of any
17
<PAGE>
provision of this Agreement, shall be effective only if it is made or given in
writing and signed by the Company and the Purchaser.
7.5 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
7.6 Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
7.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW THEREOF.
7.8 Severability. If any one or more of the provisions contained
------------
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
7.9 Entire Agreement. This Agreement, together with the exhibits and
----------------
schedules hereto and the other Transaction Documents, is intended by the parties
as a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and therein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein or therein. This Agreement, together with the exhibits
hereto, and the other Transaction Documents supersede all prior agreements and
understandings between the parties with respect to such subject matter.
7.10 Publicity. Except as otherwise required by applicable law or the
---------
rules or regulations of any national exchange on which the securities of a party
or any Affiliate of such party are listed or traded, neither party shall issue
or cause the publication of any press release or other public announcement with
respect to the transactions contemplated by this Agreement without the consent
of the other party and in any event each party agrees that it will give the
other party reasonable opportunity to review and comment upon any such release
or announcement prior to publication of the same.
18
<PAGE>
7.11 Further Assurances. Each of the parties shall execute such
------------------
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations or other actions by, or
giving any notices to, or making any filings with, any Governmental Authority or
any other Person) as may be reasonably required or desirable to carry out or to
perform the provisions of this Agreement.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized on
the date first above written.
PAYROLL TRANSFERS, INC.
By:
-------------------------------------
Name:
Title:
ACCUSTAFF INCORPORATED
By:
-------------------------------------
Name:
Title:
Accepted and Agreed for purposes
of Sections 5.4 and Section 5.5 only:
PTI Investor Co. LLC
By:
----------------------------------
Name:
Title:
20
<PAGE>
Exhibit 10.2
OPTION AGREEMENT
This Option Agreement (the "Option Agreement") is dated August 8, 1996
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between ACCUSTAFF INCORPORATED, a Florida corporation (the "Holder") and PAYROLL
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TRANSFERS, INC., a Florida corporation (the "Company").
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WHEREAS, the Holder and the Company have entered into a Purchase
Agreement (the "Purchase Agreement"), dated as of August 8, 1996, pursuant to
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which, on the date hereof, the Holder has agreed to purchase, (i) an 8%
Subordinated Convertible Note issued by the Company in the principal amount of
$10,438,402 (the "Note") and (ii) this option to acquire 176 shares of common
----
stock, par value $1.00 per share, of the Company (the "Common Stock"); and
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WHEREAS, the parties hereto desire to enter into this Option Agreement to
set forth the terms and conditions of the option. Capitalized terms used but
not defined herein shall have the meanings specified in the Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Grant of Option.
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(a) The Company hereby grants to the Holder, for the Exercise Period
(as hereinafter defined), the irrevocable right and option (the "Option") to
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purchase from the Company 176 shares of Common Stock (the "Option Shares") on
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the terms and conditions set forth in this Option Agreement. The Option shall
be exercisable, in whole or in part, at the exercise price of $106,414.26 per
Option Share (the "Exercise Price Per Share"), at any time during the Exercise
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Period.
(b) For purposes hereof, the "Exercise Period" shall mean the period
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commencing on the date hereof and terminating at 5:00 p.m., New York City time,
on July 29, 1997.
2. Exercise of Rights. Following the expiration or termination of any
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applicable waiting periods (including any extensions thereof) under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and
regulations promulgated thereby, the rights represented by the Option may be
exercised at any time during the Exercise Period by the delivery of an
irrevocable written notice (the "Option Notice"), to the Company at its address
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set forth herein (or such other office of the Company as it may designate by
notice in writing to the Holder at the address of the Holder set forth herein).
On the fifth business day after
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the delivery of the Option Notice, the closing (the "Option Closing") pursuant
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to such exercise shall be effected by (i) the payment by the Holder of the
Purchase Price in the manner provided in Section 3 hereof and (ii) the
simultaneous delivery of one or more stock certificates, as the Holder may
request, registered in the name of the Holder or its permitted assigns,
representing all of the Option Shares. The Option shall be deemed to have been
exercised immediately prior to the close of business on the date the Option
Notice is delivered and the Holder or its permitted assigns in whose name or
names the Option Shares shall be issued upon such exercise shall be deemed to be
the holder or holders of record of such Option Shares at such time and on such
date, subject to payment for such Option Shares as provided above.
3. Payment of Purchase Price. The purchase price equal to the product
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of (x) the Exercise Price Per Share multiplied by (y) the number of Option
Shares being acquired shall be paid by wire transfer of immediately available
funds in accordance with the Company's instructions, which instructions shall be
given to the Holder in writing no later than three business days prior to the
Option Closing.
4. Adjustments.
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(a) The Exercise Price Per Share shall be subject to adjustment as
follows:
(i) In case the Company shall at any time or from time to time
(A) pay a dividend or make a distribution on the outstanding shares of Common
Stock in capital stock (which, for purposes of this Section 4(a)(i) shall
include, without limitation, any dividends or distributions in the form of
options, warrants or other rights to acquire capital stock) of the Company, (B)
subdivide the outstanding shares of Common Stock into a larger number of shares,
(C) combine the outstanding shares of Common Stock into a smaller number of
shares, (D) issue any shares of its capital stock in a reclassification of the
Common Stock or (E) pay a dividend or make distribution on the outstanding
shares of Common Stock in shares of its capital stock pursuant to a shareholder
rights plan, "poison pill" or similar arrangement, then, and in each such case,
the Exercise Price Per Share in effect immediately prior to such event shall be
adjusted (and any other appropriate actions shall be taken by the Company) so
that the holder of any Option Share thereafter surrendered for conversion shall
be entitled to receive the number of shares of Common Stock or other securities
of the Company that such holder would have owned or would have been entitled to
receive upon or by reason of any of the events described above, had such Option
Share been converted immediately prior to the occurrence of such event. An
adjustment made pursuant to this Section 4(a)(i) shall become effective
retroactively (I) in the case of any such dividend or distribution, to a date
immediately following the close of business on the record date for the
determination of holders of Common Stock entitled to receive such dividend or
distribution or (II) in the case of any such subdivision, combination or
reclassification, to the close of business on the day upon which such corporate
action becomes effective.
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(ii) In case the Company shall at any time or from time to time issue
or sell shares of Common Stock (or securities convertible into or exchangeable
for shares of Common Stock, or any options, warrants or other rights to acquire
shares of Common Stock) to holders of its Common Stock at a price per share less
than the Current Market Price (as defined below) per share of Common Stock then
in effect at the record date referred to in the following sentence (treating the
price per share of any security convertible or exchangeable or exercisable into
Common Stock as equal to (A) the sum of the price for such security convertible,
exchangeable or exercisable into Common Stock plus any additional consideration
payable (without regard to any anti-dilution adjustments) upon the conversion,
exchange or exercise of such security into Common Stock divided by (B) the
number of shares of Common Stock initially underlying such convertible,
exchangeable or exercisable security), other than (I) issuances or sales for
which an adjustment is made pursuant to another paragraph of this Section 4(a)
or (II) issuances of shares of Common Stock or securities exercisable or
convertible into Common Stock pursuant to mergers, acquisitions, consolidations,
exchanges, reorganizations or combinations or bona fide stock incentive plans
for employees, directors and consultants of the Company, then, and in each such
case, the Exercise Price Per Share then in effect shall be adjusted by dividing
the Exercise Price Per Share in effect on the day immediately prior to such
record date by a fraction (x) the numerator of which shall be the sum of the
number of shares of Common Stock outstanding on such record date plus the number
of additional shares of Common Stock issued or to be issued (or the maximum
number into which such convertible or exchangeable securities initially may
convert or exchange or for which such options, warrants or other rights
initially may be exercised) and (y) the denominator of which shall be the sum of
the number of shares of Common Stock outstanding on such record date plus the
number of shares of Common Stock which the aggregate consideration for the total
number of such additional shares of Common Stock so issued (or into which such
convertible or exchangeable securities may convert or exchange or for which such
options, warrants or other rights may be exercised plus the aggregate amount of
any additional consideration initially payable upon conversion, exchange or
exercise of such security) would purchase at the Current Market Price per share
of Common Stock on such record date; provided, that if the Holder is offered the
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opportunity too participate in any such offering on a pro rata basis with the
holders of Common Stock and declines to participate, no adjustment shall be made
pursuant to this Section 4(a)(ii). Such adjustment shall be made whenever such
shares, securities, options, warrants or other rights are issued, and shall
become effective retroactively to a date immediately following the close of
business on the record date for the determination of stockholders entitled to
receive such shares, securities, options, warrants or other rights; provided,
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however, that the determination as to whether an adjustment is required to be
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made pursuant to this Section 4(a)(ii) shall only be made upon the issuance of
such shares or such convertible or exchangeable securities, options, warrants or
other rights, and not upon the issuance of the security into which such
convertible or exchangeable security converts or exchanges, or the security
underlying such option, warrants or other right; provided, further, that if any
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convertible or
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exchangeable securities, options, warrants or other rights (or any portions
thereof) which shall have given rise to an adjustment pursuant to this Section
4(a)(ii) shall have expired or terminated without the exercise thereof and/or if
by reason of the terms of such convertible or exchangeable securities, options,
warrants or other rights there shall have been an increase or increases, with
the passage of time or otherwise, in the price payable upon the exercise or
conversion thereof, then the Exercise Price Per Share hereunder shall be
readjusted (but to no greater extent than originally adjusted) on the basis of
(x) eliminating from the computation any additional shares of Common Stock
corresponding to such convertible or exchangeable securities, options, warrants
or other rights as shall have expired or terminated, (y) treating the additional
shares of Common Stock, if any, actually issued or issuable pursuant to the
previous exercise of such convertible or exchangeable securities, options,
warrants or other rights as having been issued for the consideration actually
received and receivable therefor and (z) treating any of such convertible or
exchangeable securities, options, warrants or other rights which remain
outstanding as being subject to exercise or conversion on the basis of such
exercise or conversion price as shall be in effect at the time.
(iii) In case the Company shall at any time or from time to
time distribute to all holders of shares of its Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the resulting or surviving corporation and the Common Stock is not
changed or exchanged) cash, evidences of indebtedness of the Company or another
issuer, securities of the Company or another issuer or other assets (excluding
(A) dividends or distributions payable out of consolidated earnings or earned
surplus, and (B) dividends payable in shares of Common Stock for which
adjustment is made under Section 4(a)(i)) or rights or warrants to subscribe for
or purchase securities of the Company (excluding those referred to in Section
4(a)(ii)), then, and in each such case, the Exercise Price Per Share then in
effect shall be adjusted by dividing the Exercise Price Per Share in effect
immediately prior to the date of such distribution by a fraction (x) the
numerator of which shall be the Current Market Price of the Common Stock on the
record date referred to below and (y) the denominator of which shall be such
Current Market Price of the Common Stock less the then Fair Market Value (as
determined by the Board of Directors of the Company) of the portion of the cash,
evidences of indebtedness, securities or other assets so distributed or of such
subscription rights or warrants applicable to one share of Common Stock (but
such denominator not to be less than one); provided, however, that no adjustment
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shall be made with respect to any distribution of rights to purchase securities
of the Company if the Holder would otherwise be entitled to receive such rights
upon conversion at any time of the Option Shares into Common Stock unless such
rights are subsequently redeemed by the Company, in which case such redemption
shall be treated for purposes of this Section 4(a)(iii) as a dividend on the
Common Stock. Such adjustment shall be made whenever any such distribution is
made and shall become effective retroactively to a date immediately following
the close of business on the record date for the determination of stockholders
entitled to receive such distribution.
(iv) In case the Company at any time or from time to time shall
take any action affecting its Common Stock (it being understood that the
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<PAGE>
issuance or sale of shares of Common Stock (or securities convertible into or
exchangeable for shares of Common Stock, or any options, warrants or other
rights to acquire shares of Common Stock) to any Person at a price per share
less than the Exercise Price Per Share then in effect shall not be deemed such
an action), other than an action described in any of Section 4(a)(i) through
Section 4(a)(ii), inclusive, or Section 4(g), then, the Exercise Price Per Share
shall be adjusted in such manner and at such time as the Board of Directors of
the Company in good faith determines to be equitable in the circumstances (such
determination to be evidenced in a resolution, a certified copy of which shall
be mailed to the Holder).
(v) Notwithstanding anything herein to the contrary, no
adjustment under this Section 4(c) need be made to the Exercise Price Per Share
unless such adjustment would require an increase or decrease of at least 1% of
the Exercise Price Per Share then in effect. Any lesser adjustment shall be
carried forward and shall be made at the time of and together with the next
subsequent adjustment, which, together with any adjustment or adjustments so
carried forward, shall amount to an increase or decrease of at least 1% of such
Exercise Price Per Share .
(vi) "Current Market Price" per share shall mean, on any date
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specified herein for the determination thereof, (a) the average daily Market
Price (as defined below) of the Common Stock for those days during the period of
30 days, ending on such date, on which the national securities exchanges were
open for trading and (b) if the Common Stock is not then listed or admitted to
trading on any national securities exchange or quoted in the over-counter
market, the Market Price on such date. As used herein, "Market Price" shall
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mean, per share of Common Stock, on any date specified herein: (A) the closing
price per share of the Common Stock on such date published in The Wall Street
Journal or, if no such closing price on such date is published in The Wall
Street Journal, the average of the closing bid and asked prices on such date, as
officially reported on the principal national securities exchange on which the
Common Stock is then listed or admitted to trading; or (B) if the Common Stock
is not then listed or admitted to trading on any national securities exchange
but is designated as a national market system security by the NASD, the last
trading price of the Common Stock on such date; or (C) if there shall have been
no trading on such date or if the Common Stock is not so designated, the average
of the reported closing bid and asked prices of the Common Stock, on such date
as shown by NASDAQ and reported by any member firm of the New York Stock
Exchange selected by the Company; or (D) if none of (A), (B) or (C) is
applicable, a market price per share determined at the Company's expense by a
nationally recognized appraiser chosen by the Holder and approved by the
Company, which approval shall not be unreasonably withheld. If no such
appraiser is so chosen more than twenty business days after notice of the
necessity of such calculation shall have been delivered by the Company to the
Holder, then the appraiser shall be chosen by the Company.
(b) If the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or other
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<PAGE>
distribution, and shall thereafter and before the distribution to stockholders
thereof legally abandon its plan to pay or deliver such dividend or
distribution, then thereafter no adjustment in the Exercise Price Per Share then
in effect shall be required by reason of the taking of such record.
(c) Upon any increase or decrease in the Exercise Price Per Share,
then, and in each such case, the Company promptly shall deliver to the Holder a
written notice signed by an authorized officer of the Company, setting forth in
reasonable detail the event requiring the adjustment and the method by which
such adjustment was calculated and specifying the increased or decreased
Exercise Price Per Share then in effect following such adjustment.
(d) No fractional shares or scrip representing fractional shares shall
be issued upon the conversion of any Option Shares. If more than one Option
Share shall be surrendered for conversion at one time by the Holder, the number
of full shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate number of Option Shares so surrendered.
If the conversion of any Option Share or Shares results in a fraction, an amount
equal to such fraction multiplied by the Current Market Price of the Common
Stock on the business day preceding the day of conversion shall be paid to such
holder in cash by the Company.
(e) In case of any capital reorganization or reclassification or other
change of outstanding shares of Common Stock (other than a change in par value,
or from par value to no par value, or from no par value to par value), or in
case of any consolidation or merger of the Company with or into another Person
(other than a consolidation or merger in which the Company is the resulting or
surviving Person and which does not result in any reclassification or change of
outstanding Common Stock), or in case of any sale or other disposition to
another Person of all or substantially all of the assets of the Company (any of
the foregoing, a "Transaction"), the Holder shall have the right thereafter too
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convert the Option Shares into the kind and amount of shares of stock or other
securities (of the Company or another issuer) or property or cash receivable
upon such Transaction by a Holder of the number of shares of Common Stock in to
which such Option Shares could have been converted immediately prior to such
Transaction. The provisions of this Section 4(e) and any equivalent thereof in
any such certificate similarly shall apply to successive Transactions. The
provisions of this Section 4(e) shall be the sole right of the Holder in
connection with any Transaction and the Holder shall have no separate vote
thereon.
(f) The Company shall at all times reserve and keep available for
issuance upon the conversion of the Option Shares, such number of its authorized
but unissued shares of Common Stock as will from time to time be sufficient to
permit the conversion of all outstanding Option Shares, and shall take all
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<PAGE>
action required to increase the authorized number of shares of Common Stock if
at any time there shall be insufficient authorized but unissued shares of Common
Stock to permit such reservation or to permit the conversion of all outstanding
Option Shares.
(g) The issuance or delivery of certificates for Common Stock upon the
conversion of the Option Shares shall be made without charge to the Holder for
such certificates or for any tax in respect of the issuance or delivery of such
certificates or the securities represented thereby, and such certificates shall
be issued or delivered in the respective name of, or in such names as may be
directed by, the Holder; provided, however, that the Company shall not be
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required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate in a name other than the
Holder, and the Company shall not be required to issue or deliver such
certificate unless or until the Person requesting the issuance or delivery
thereof shall have paid to the Company the amount of such tax or shall have
established to the reasonable satisfaction of the Company that such tax has been
paid.
5. No Rights Prior to Exercise. Prior to its due exercise pursuant to
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Section 2 hereof, the Option shall not entitle the Holder to any voting rights
or other rights as a holder of shares of Common Stock.
6. Representations and Warranties of Holder.
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The Holder hereby:
(a) acknowledges that the Holder has been advised that the Option and
the Option Shares have not been registered under the Securities Act of 1933, as
amended (the "Securities Act") or under any state securities laws;
(b) represents and warrants that the Option and the Option Shares are
being purchased by the Holder for the Holder's own sole benefit and account for
investment and not with a view to, or for resale in connection with, a public
offering or distribution thereof;
(c) agrees that the Option Shares will not be sold or otherwise
disposed of except in compliance with the registration requirements or exemption
provisions under the Securities Act and the rules and regulations promulgated
thereunder, or any other applicable securities laws;
(d) agrees that the Option Shares are subject to the rights or first
refusal, tag-along and drag-along provisions of Section 5.4 of the Purchase
Agreement; and
(e) consents that the certificate or certificates representing the
Option Shares may be impressed with a legend in substantially the following
form:
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"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THE SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, OR TRANSFERRED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER
SUCH ACT OR AN EXEMPTION THEREFROM. THE SHARES ARE ALSO SUBJECT TO THE
TERMS AND PROVISIONS OF THE PURCHASE AGREEMENT, DATED AS OF AUGUST 8, 1996,
BETWEEN PAYROLL TRANSFERS, INC. AND ACCUSTAFF INCORPORATED."
7. Reservation of Common Stock. The Company covenants that it will at
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all times reserve and keep available out of its authorized Common Stock, solely
for issuance and delivery upon the exercise of the Option in accordance with the
terms hereof, a number of shares of Common Stock equal to the number of such
shares from time to time issuable upon the exercise of the Option in accordance
with the terms hereof. The Company covenants that all shares of Common Stock
issued upon the exercise of the Option shall be duly authorized, validly issued,
fully paid and non-assessable, with no personal liability attaching thereto.
8. Miscellaneous.
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(a) Certain Definitions. As used in this Agreement, the following
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terms have the following meanings unless the context otherwise requires:
(i) "affiliate," with respect to any person, means and includes
---------
any other person controlling, controlled by or under common control with such
person.
(ii) "person" means any individual, corporation, partnership,
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firm, joint venture, association, joint-stock company, trust, unincorporated
organization, governmental or regulatory body or other entity.
(b) Waivers and Amendments. This Option Agreement may be amended,
----------------------
modified, canceled, altered or supplemented, and the terms and conditions hereof
may be waived, only by the execution and delivery of a written agreement
executed by the parties hereto or, in the case of a waiver, by the party
waiving compliance. No delay on the part of any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
waiver on the part of any party of any right, power or privilege hereunder, nor
any single or partial exercise of any right, power or privilege hereunder,
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege hereunder.
(c) Notices. Any notice and other communication provided for,
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required or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, courier
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service, overnight mail, in each case, postage prepaid, personally delivery or
facsimile transmission. Any such notice or communication shall be deemed to
have been duly given (i) when delivered by hand, if personally delivered or by
facsimile transmission, when receipt is confirmed by telephone the same day,
(ii) when delivered by courier or overnight mail, if delivered by a commercial
courier service or overnight mail, and (iii) 5 days after being deposited in the
mail, if mailed; provided, that in all cases, confirmation by telephone or
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facsimile of receipt thereof has been obtained:
If to the Holder, to:
AccuStaff Incorporated
6440 Atlantic Blvd.
Jacksonville, Florida 32211
Telephone : (904) 725-5374
Telecopy: (904) 725-8513
Attention: Derek Dewan, President
with a copy to:
Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Telephone: (404) 881-7000
Telecopy: (404) 881-7777
Attention: Timothy Mann, Esq.
If to the Company, to:
Payroll Transfers, Inc.
3710 Corporate Drive
Suite 300
Tampa, Florida 33619
Telephone: (813) 664-0404
Telecopy: (813) 621-6816
Attention: President
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telephone: (212) 373-3000
Telecopy: (212) 757-3990
Attention: Matthew Nimetz, Esq.
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(d) Entire Agreement. This Option Agreement and, to the extent
----------------
provisions of other agreements referred to herein are applicable with respect to
the rights or obligations of the parties under this Agreement, contain the
entire understanding of the parties in respect of the subject matter hereof, and
supersede all prior agreements, written or oral, with respect thereto.
(E) GOVERNING LAW. THIS OPTION AGREEMENT SHALL BE GOVERNED AND
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CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
(f) Binding Effect; No Assignment. This Option Agreement shall be
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binding upon and inure to the benefit of the parties and their respective
successors. The rights and obligations represented by this Option Agreement
shall not be transferred, sold, assigned or hypothecated. Nothing in this
Option Agreement, expressed or implied, is intended to confer on any person not
a party hereto any rights or remedies under or by reason of this Option
Agreement.
(g) Variations in Pronouns. All pronouns and any variations thereof
----------------------
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
(h) Counterparts. This Option Agreement may be executed in two or
------------
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(i) Severability. If any provision of this Option Agreement or the
------------
application of any provision hereof to any party hereto or set of circumstances
is held invalid, the remainder of this Option Agreement and the application of
such provision to the other parties hereto or sets of circumstances shall not be
affected, unless the provisions held invalid shall substantially impair the
benefits of the remaining portions of this Option Agreement.
(j) Headings. The headings in this Option Agreement are for reference
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purposes only and shall not in any way affect the meaning or interpretation of
this Option Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Option Agreement
to be duly executed by their respective authorized officers on the date first
above written.
PAYROLL TRANSFERS, INC.
By:
---------------------------------
Name:
Title:
ACCUSTAFF INCORPORATED
By:
---------------------------------
Name:
Title:
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Exhibit 10.3
THIS NOTE HAS NOT BEEN REGISTERED UNDER APPLICABLE STATE OR FEDERAL SECURITIES
LAWS AND MAY NOT BE SOLD OR OFFERED FOR SALE UNLESS REGISTERED PURSUANT TO SUCH
LAWS OR UNLESS IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER
AN EXEMPTION FROM REGISTRATION IS AVAILABLE. THIS NOTE IS SUBORDINATED AS
PROVIDED IN SECTION 6 HEREOF AND THE TRANSFER OF THIS NOTE IS RESTRICTED BY THE
PURCHASE AGREEMENT, DATED AUGUST 8, 1996, BETWEEN PAYROLL TRANSFERS, INC. AND
ACCUSTAFF INCORPORATED, A COPY OF WHICH IS ON FILE AT THE OFFICE OF THE ISSUER
OF THIS NOTE.
8% SUBORDINATED CONVERTIBLE NOTE
DUE AUGUST 8, 2004
$10,438,402 New York, New York
August 8, 1996
FOR VALUE RECEIVED, the undersigned, PAYROLL TRANSFERS, INC., a Florida
corporation (the "Company"), hereby promises to pay to AccuStaff Incorporated or
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registered assigns (the "Holder"), the principal amount of Ten Million Four
Hundred Thirty-Eight Thousand Four Hundred Two Dollars ($10,438,402) on August
8, 2004 (the "Maturity Date") plus all accrued and unpaid interest on the Note
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as of the Maturity Date, at the rate set forth in Section 1 hereof.
Certain capitalized terms used herein are defined in Section 7 and capitalized
terms not defined herein have the meanings ascribed to them in the Purchase
Agreement, dated as of the date hereof, by and between the Company and AccuStaff
Incorporated (as amended, supplemented or modified in accordance with the terms
thereof, the "Purchase Agreement").
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Section 1. Interest.
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The Company promises to pay interest on the principal amount of this Note
at the rate of 8% per annum, compounded annually, in the manner specified in
this Section 1. Interest on this Note shall accrue from the Issue Date until
repayment of the principal and payment of all accrued and unpaid interest in
full, but shall only be due and payable at the Maturity Date, on the prepayment
of the Note in the manner specified in Section 2 or upon a conversion of this
Note in the manner specified in Section 3. Interest shall be computed on the
basis of a 365 or 366-day year and the number of actual days elapsed.
<PAGE>
Section 2. Optional Prepayment.
-------------------
(a) Upon notice given to the Holder as provided in Section 2(b), the Company,
with the consent of the Holder, may prepay all of or a portion of this Note, at
any time, by paying in cash an amount equal to the outstanding principal amount
of this Note, or the portion of this Note called for prepayment, together with
interest accrued and unpaid thereon to the date fixed for prepayment, without
penalty or premium.
(b) The Company may give notice of prepayment of this Note or any portion
thereof not less than ten (10) nor more than sixty (60) days prior to the date
fixed for such prepayment. Such notice of prepayment shall be given in the
manner specified in Section 7.2 of the Purchase Agreement. Upon notice of
prepayment being given by Company, the Company covenants and agrees that it
shall prepay, on the date therein fixed for prepayment, this Note or the portion
hereof so called for prepayment, together with interest accrued and unpaid
thereon to the date fixed for such prepayment.
(c) All prepayments under this Section 2 and the payment of the Note on the
Maturity Date shall include payment of accrued interest due under this Note and
shall be applied first to the payment of accrued interest and thereafter to
principal.
Section 3. Conversion.
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(a) Following the expiration or termination of applicable waiting periods
under the HSR Act, including any extensions thereof, (i) the holder of this Note
shall have the right, at its option, at any time and from time to time from the
Issue Date until August 8, 2001, to convert, subject to the terms and provisions
of this Section 3, and (ii) the Company, upon the occurrence of any Conversion
Event, may elect with no further action required to be taken by the holder
thereof to cause the conversion, subject to the terms and provisions of this
Section 3, of the Note, in whole but not in part, into Common Stock. In each
such case, the Note shall be converted into such number of fully paid and non-
assessable shares of Common Stock as is equal, subject to Section 3(g), to the
product of the principal amount of the Note divided by the Conversion Price (as
defined below) then in effect. The Conversion Price shall be $74,560.01,
subject to adjustment as set forth in Section 3(c).
The conversion right of a holder of the Note shall be exercised by the
holder by the surrender of the Note to the Company at any time during usual
business hours at its principal place of business to be maintained by it,
accompanied by written notice that the holder elects to convert such Note and
specifying the name or names (with address) in which a certificate or
certificates for shares of Common Stock are to be issued and (if so required by
the Company) by a written instrument or instruments of transfer in form
reasonably satisfactory to the Company duly executed by the holder or its duly
authorized legal representative and transfer tax stamps or funds
2
<PAGE>
therefor, if required pursuant to Section 3(i). Any conversion by the Company
shall be automatic and shall not require the holder of the Note to take any
action to be effective. Immediately upon the conversion by the holder or the
Company of the Note, the holder of the Note shall be deemed to be the holder of
record of Common Stock issuable upon conversion of the Note notwithstanding that
the share register of the Company shall then be closed or that certificates
representing such Common Stock shall not then be actually delivered to such
person. Upon notice from the Company, the holder of the Note shall promptly
surrender to the Company, at the Company's principal place of business, the
canceled Note. On the date of any voluntary or automatic conversion, all rights
with respect to the Note, including the right, if any, to receive notices, will
terminate, except only the rights of holders thereof to (i) receive certificates
for the number of shares of Common Stock into which the Note has been converted,
and (ii) exercise the rights to which they are entitled as holders of Common
Stock.
If the last day for the exercise of the conversion right shall not be a
Business Day, then such conversion right may be exercised on the next preceding
Business Day.
(b) When the Note is converted pursuant to this Section 3, the Current Market
Price of the shares of Common Stock received upon conversion shall be applied
first to the payment of all accrued and unpaid interest on the Note to the date
of conversion and thereafter the remainder shall be applied to the repayment in
full of the principal amount of this Note; provided, that, if the Company elects
--------
to convert the Note upon the occurrence of a Conversion Event, the Company shall
pay to the holder of the Note in cash an amount equal to the positive
difference, if any, between (i) the aggregate amount of unpaid and accrued
interest on the Note as of such conversion date minus (ii) the positive
-----
difference, if any, between (A) the aggregate Current Market Price for all of
the issued and outstanding shares of Common Stock minus (B) $105,438,402, and
-----
such cash payment shall first be applied to such unpaid and accrued interest on
the Note, after which the Current Market Price of the shares of Common Stock
received upon conversion shall be applied first to any accrued and unpaid
interest remaining after the application of the cash payment and thereafter the
remainder if the Current Market Price of the shares of Common Stock shall be
applied to the repayment in full of the principal amount of this Note.
(c) The Conversion Price shall be subject to adjustment as follows:
(i) In case the Company shall at any time or from time to time (A) pay a
dividend or make a distribution on the outstanding shares of Common Stock in
capital stock (which, for purposes of this Section 3(c) shall include, without
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<PAGE>
limitation, any dividends or distributions in the form of options, warrants or
other rights to acquire capital stock) of the Company, (B) subdivide the
outstanding shares of Common Stock into a larger number of shares, (C) combine
the outstanding shares of Common Stock into a smaller number of shares, (D)
issue any shares of its capital stock in a reclassification of the Common Stock
or (E) pay a dividend or make distribution on the outstanding shares of Common
Stock in shares of its capital stock pursuant to a shareholder rights plan,
"poison pill" or similar arrangement, then, and in each such case, the
Conversion Price in effect immediately prior to such event shall be adjusted
(and any other appropriate actions shall be taken by the Company) so that the
holder of the Note thereafter surrendered for conversion shall be entitled to
receive the number of shares of Common Stock or other securities of the Company
that such holder would have owned or would have been entitled to receive upon or
by reason of any of the events described above, had the Note been converted
immediately prior to the occurrence of such event. An adjustment made pursuant
to this Section 3(c)(i) shall become effective retroactively (I) in the case of
any such dividend or distribution, to a date immediately following the close of
business on the record date for the determination of holders of Common Stock
entitled to receive such dividend or distribution or (II) in the case of any
such subdivision, combination or reclassification, to the close of business on
the day upon which such Company action becomes effective.
(ii) In case the Company shall at any time or from time to time issue or
sell shares of Common Stock (or securities convertible into or exchangeable for
shares of Common Stock, or any options, warrants or other rights to acquire
shares of Common Stock) to holders of its Common Stock at a price per share less
than the Current Market Price per share of Common Stock then in effect at the
record date referred to in the following sentence (treating the price per share
of any security convertible or exchangeable or exercisable into Common Stock as
equal to (A) the sum of the price for such security convertible, exchangeable or
exercisable into Common Stock plus any additional consideration payable (without
regard to any anti-dilution adjustments) upon the conversion, exchange or
exercise of such security into Common Stock divided by (B) the number of shares
of Common Stock initially underlying such convertible, exchangeable or
exercisable security), other than (I) issuances or sales for which an adjustment
is made pursuant to another paragraph of this Section 3(c) or (II) issuances of
shares of Common Stock or securities exercisable or convertible into Common
Stock pursuant to mergers, acquisitions, consolidations, exchanges,
reorganizations or combinations or bona fide stock incentive plans for
employees, directors and consultants of the Company, then, and in each such
case, the Conversion Price then in effect shall be adjusted by dividing the
Conversion Price in effect on the day immediately prior to such record date by a
fraction (x) the numerator of which shall be the sum of the number of shares of
Common Stock outstanding on such record date plus the number of additional
shares of Common Stock issued or to be issued (or the maximum number into which
such convertible or exchangeable securities initially may convert or exchange or
for which such options, warrants or other rights initially may be exercised) and
(y) the
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<PAGE>
denominator of which shall be the sum of the number of shares of Common Stock
outstanding on such record date plus the number of shares of Common Stock which
the aggregate consideration for the total number of such additional shares of
Common Stock so issued (or into which such convertible or exchangeable
securities may convert or exchange or for which such options, warrants or other
rights may be exercised plus the aggregate amount of any additional
consideration initially payable upon conversion, exchange or exercise of such
security) would purchase at the Current Market Price per share of Common Stock
on such record date; provided, that if the holder of the Note is offered the
--------
opportunity to participate in any such offering on a pro rata basis with the
holders of Common Stock and declines to participate, no adjustment shall be made
pursuant to this Section 3(c)(ii). Such adjustment shall be made whenever such
shares, securities, options, warrants or other rights are issued, and shall
become effective retroactively to a date immediately following the close of
business on the record date for the determination of stockholders entitled to
receive such shares, securities, options, warrants or other rights; provided,
--------
however, that the determination as to whether an adjustment is required to be
- -------
made pursuant to this Section 3(c)(ii) shall only be made upon the issuance of
such shares or such convertible or exchangeable securities, options, warrants or
other rights, and not upon the issuance of the security into which such
convertible or exchangeable security converts or exchanges, or the security
underlying such option, warrants or other right; provided, further, that if any
-------- -------
convertible or exchangeable securities, options, warrants or other rights (or
any portions thereof) which shall have given rise to an adjustment pursuant to
this Section 3(c)(ii) shall have expired or terminated without the exercise
thereof and/or if by reason of the terms of such convertible or exchangeable
securities, options, warrants or other rights there shall have been an increase
or increases, with the passage of time or otherwise, in the price payable upon
the exercise or conversion thereof, then the Conversion Price hereunder shall be
readjusted (but to no greater extent than originally adjusted) on the basis of
(x) eliminating from the computation any additional shares of Common Stock
corresponding to such convertible or exchangeable securities, options, warrants
or other rights as shall have expired or terminated, (y) treating the additional
shares of Common Stock, if any, actually issued or issuable pursuant to the
previous exercise of such convertible or exchangeable securities, options,
warrants or other rights as having been issued for the consideration actually
received and receivable therefor and (z) treating any of such convertible or
exchangeable securities, options, warrants or other rights which remain
outstanding as being subject to exercise or conversion on the basis of such
exercise or conversion price as shall be in effect at the time.
(iii) In case the Company shall at any time or from time to time
distribute to all holders of shares of its Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the resulting or surviving Company and the Common Stock is not
changed or exchanged) cash, evidences of indebtedness of the Company or another
issuer, securities of the Company or another issuer or other assets (excluding
(A) regular dividends or distributions payable out of the Company's current
earnings, and
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<PAGE>
(B) dividends payable in shares of Common Stock for which adjustment is made
under Section 3(c)(i)) or rights or warrants to subscribe for or purchase
securities of the Company (excluding those referred to in Section 3(c)(ii)),
then, and in each such case, the Conversion Price then in effect shall be
adjusted by dividing the Conversion Price in effect immediately prior to the
date of such distribution by a fraction (x) the numerator of which shall be the
Current Market Price of the Common Stock on the record date referred to below
and (y) the denominator of which shall be such Current Market Price of the
Common Stock less the then Fair Market Value (as determined by the Board of
Directors of the Company) of the portion of the cash, evidences of indebtedness,
securities or other assets so distributed or of such subscription rights or
warrants applicable to one share of Common Stock (but such denominator not to be
less than one); provided, however, that no adjustment shall be made with respect
-------- -------
to any distribution of rights to purchase securities of the Company if the
holder of the Note would otherwise be entitled to receive such rights upon
conversion of the Note into Common Stock unless such rights are subsequently
redeemed by the Company, in which case such redemption shall be treated for
purposes of this Section 3(c)(iii) as a dividend on the Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall become
effective retroactively to a date immediately following the close of business on
the record date for the determination of stockholders entitled to receive such
distribution.
(iv) In the case the Company at any time or from time to time shall take
any action affecting its Common Stock (it being understood that the issuance or
sale of shares of Common Stock (or securities convertible into or exchangeable
for shares of Common Stock, or any options, warrants or other rights to acquire
shares of Common Stock) to any Person at a price per share less than the
Conversion Price then in effect shall not be deemed such an action), other than
an action described in any of Section 3(c)(i) through Section 3(c)(iii),
inclusive, or Section 3(g), then, the Conversion Price shall be adjusted in such
manner and at such time as the Board of Directors of the Company in good faith
determines to be equitable in the circumstances (such determination to be
evidenced in a resolution, a certified copy of which shall be mailed to the
holder of the Note).
(v) Notwithstanding anything herein to the contrary, no adjustment under
this Section 3(c) need be made to the Conversion Price unless such adjustment
would require an increase or decrease of at least 1% of the Conversion Price
then in effect. Any lesser adjustment shall be carried forward and shall be
made at the time of and together with the next subsequent adjustment, which,
together with any adjustment or adjustments so carried forward, shall amount to
an increase or decrease of at least 1% of such Conversion Price.
(d) If the Company shall take a record of the holders of its Common Stock for
the purpose of entitling them to receive a dividend or other distribution, and
shall thereafter and before the distribution to stockholders thereof legally
abandon its plan to pay or deliver such dividend or distribution, then
thereafter no adjustment in the Conversion Price then in effect shall be
required by reason of the taking of such record.
(e) Upon any increase or decrease in the Conversion Price, then, and in each
such case, the Company promptly shall deliver to the holder of the Note a
written notice signed by an authorized officer of the Company, setting forth in
6
<PAGE>
reasonable detail the event requiring the adjustment and the method by which
such adjustment was calculated and specifying the increased or decreased
Conversion Price then in effect following such adjustment.
(f) No fractional shares or scrip representing fractional shares shall be
issued upon the conversion of the Note. If the conversion of the Note results
in a fraction, an amount equal to such fraction multiplied by the Current Market
Price of the Common Stock on the Business Day preceding the day of conversion
shall be paid to such holder in cash by the Company.
(g) In the event of any capital reorganization or reclassification or other
change of outstanding shares of Common Stock (other than a change in par value,
or from par value to no par value, or from no par value to par value), or in
case of any consolidation or merger of the Company with or into another Person
(other than a consolidation or merger in which the Company is the resulting or
surviving Person and which does not result in any reclassification or change of
outstanding Common Stock), or in case of any sale or other disposition to
another Person of all or substantially all of the assets of the Company (any of
the foregoing, a "Transaction"), the holder of the Note shall have the right
-----------
thereafter to convert such Note into the kind and amount of shares of stock or
other securities (of the Company or another issuer) or property or cash
receivable upon such Transaction by a holder of the number of shares of Common
Stock into which such Note could have been converted immediately prior to such
Transaction. The provisions of this Section 3(g) and any equivalent thereof in
any such certificate similarly shall apply to successive Transactions. The
provisions of this Section 3(g) shall be the sole right of the holder of this
Note in connection with any Transaction and such holder shall have no separate
vote thereon.
(h) The Company shall at all times reserve and keep available for issuance
upon the conversion of the Note, such number of its authorized but unissued
shares of Common Stock as will be sufficient to permit the conversion of the
Note, and shall take all action required to increase the authorized number of
shares of Common Stock if at any time there shall be insufficient authorized but
unissued shares of Common Stock to permit such reservation or to permit the
conversion of this Note.
(i) The issuance or delivery of certificates for Common Stock upon the
conversion of the Note shall be made without charge to the converting holder of
such Note for such certificates or for any tax in respect of the issuance or
delivery of such certificates or the securities represented thereby, and such
certificates shall be issued
7
<PAGE>
or delivered in the respective names of, or in such names as may be directed by,
the holder of the Note converted; provided, however, that the Company shall not
-------- -------
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificate in a name other
than that of the holder of the Note converted, and the Company shall not be
required to issue or deliver such certificate unless or until the Person or
Persons requesting the issuance or delivery thereof shall have paid to the
Company the amount of such tax or shall have established to the reasonable
satisfaction of the Company that such tax has been paid.
Section 4. Covenants.
---------
(a) The Company shall give the Holder at least 20 days notice of the record
date for any dividend or other distribution to be paid on any shares of the
Common Stock (other than a dividend or distribution of the type described in
Section 3(c)(i) above).
(b) From and after the Issue Date, the Company shall at all times keep
authorized and reserved for issuance hereunder, a number of fully paid and non-
assessable shares of Common Stock into which this Note may be converted.
(c) The Company shall, and shall cause each of its material Subsidiaries to
preserve and maintain in full force and effect its existence in good standing of
the laws of its state of incorporation or organization.
(d) The Company will give prompt written notice of any Event of Default to the
Holder in accordance with the provision of this Agreement.
(e) The Company will not enter into or permit to exist any transactions with
any Affiliate other than on terms and conditions as favorable to the Company as
would be obtainable at the time in a comparable arm's length transaction with
any Person who is not an Affiliate.
(f) The Company shall deliver to the Purchaser:
(i) as soon as available, but not later than one hundred and twenty (120)
days after the end of each fiscal year of the Company, a copy of the audited
consolidated balance sheet of the Company and its Subsidiaries as of the end of
such year and the related consolidated statements of income and cash flows for
such fiscal year, setting forth in each case in comparative form the figures for
the previous year, all in reasonable detail and accompanied by the report of
KPMG Peat Marwick (or any successor thereto) or another nationally recognized
independent public accounting firm, which report shall state that such
consolidated financial statements present fairly the financial position for the
periods indicated in conformity with GAAP applied on a basis consistent with
prior years; and
(ii) as soon as available, but in any event not later than sixty (60)
days after the end of each of the first three fiscal quarters of each year, the
unaudited consolidated balance sheet of the Company and its Subsidiaries, and
the related consolidated statements of income and cash flow for such quarter and
for the period commencing on the first day of the fiscal year and ending on the
last day of such quarter, all certified by an authorized officer; and
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<PAGE>
(iii) all information delivered to holders pursuant to the indenture
for any senior debt; and
(iv) any reports or registration statements filed by the Company pursuant
to the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended.
(g) Prior to the consummation of an initial public offering of the Common
Stock, if requested by the Holder, a representative of the Holder shall have the
right to consult with senior management of the Company from time to time with
prior notice on matters relating to the business and affairs of the Company.
Section 5. Defaults and Remedies.
---------------------
(a) An "Event of Default" shall occur if:
(i) the Company defaults in the payment of principal of this Note when
the same becomes due and payable, whether on the Maturity Date or at a date
fixed for prepayment;
(ii) any representation or warranty set forth in the Purchase Agreement
shall prove to have been false in any material respect as of the date hereof and
the Holder shall have notified the Company of such fact within twelve (12)
months of the date hereof;
(iii) the Company materially fails to comply with any of the
covenants contained in this Note and the Holder notifies the Company in writing
of the non-compliance and such non-compliance shall continue unremedied for
forty-five (45) days after receipt of such notice;
(iv) the Company or any of its material Subsidiaries pursuant to or
within the meaning of any bankruptcy law: (A) commences a voluntary case, (B)
consents to the entry of an order for relief against it in an involuntary case,
(C) consents to the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator or other similar official (a "Custodian") of it or for all
---------
or substantially all of its property, or (D) makes a general assignment for the
benefit of its creditors;
(v) a court of competent jurisdiction enters an order or decree under any
bankruptcy law that (A) is for relief against the Company or any of its material
Subsidiaries in an involuntary case, (B) appoints a Custodian of the Company or
any of its Subsidiaries or for all or substantially all of its property, or (C)
9
<PAGE>
orders the winding up or liquidation of the Company or any of its Subsidiaries
and the order or decree remains unstayed and in effect for 120 days;
(b) If an Event of Default occurs under clauses (iv) or (v) above, then the
principal of and the accrued interest on the Note shall become due and payable
immediately, whether or not notice of such Event of Default shall have been
given by the holder of Note. If any Event of Default occurs and is continuing,
the holder of the Note, by notice to the Company, may declare the principal of
and accrued interest on the Note to be due and payable immediately. Upon such
declaration such principal and interest shall be due and payable immediately.
The holder of the Note may rescind an acceleration and its consequences if all
existing Events of Default have been cured or waived and if the rescission would
not conflict with any judgment or decree. Nothing in this Section 5 shall limit
or modify the provisions of Section 6.
Section 6. Subordination.
-------------
(a) The Company covenants and agrees, and the holder of this Note (whether
upon original issue or upon transfer, assignment or exchange thereof), by his
acceptance hereof, likewise covenants and agrees, that the payment of the
principal of and interest on this Note, together with any other payments payable
in respect of this Note, including, without limitation, any amount payable in
connection with the redemption or repurchase of this Note ("Subordinated
------------
Amounts") shall, to the extent and in the manner hereinafter set forth, be
subordinated and subject in right of payment to the prior payment in full of all
Senior Indebtedness (as defined below), whether outstanding at the date of this
Note or hereafter incurred.
(b) The term "Senior Indebtedness" shall mean the principal of and interest
-------------------
on, and any other payment due pursuant to any of the following, whether
outstanding at the date hereof or hereafter incurred or created:
(i) all indebtedness of the Company for money borrowed (including,
without limitation, any indebtedness secured by a mortgage, conditional sales
contract or other lien or encumbrance which is (A) given to secure all or part
of the purchase price of property subject thereto, whether given to the vendor
of such property or to another, or (B) existing on property at the time of
acquisition thereof);
(ii) all indebtedness of the Company evidenced by notes, debentures,
bonds or other securities sold by the Company for money;
(iii) all lease obligations of the Company which are capitalized on the
books of the Company in accordance with generally accepted accounting
principles;
(iv) all indebtedness of others of the kinds described in either of the
preceding clauses (i) or (ii) and all lease obligations of others of the kind
described in the preceding clause (iii) assumed by or guaranteed in any manner
10
<PAGE>
by the Company or in effect guaranteed by the Company through an agreement to
purchase, contingent or otherwise.
(v) all indebtedness of any Subsidiary of the Company for which the
Company is liable as a guarantor;
(vi) all renewals, extensions, refundings or refinancings of indebtedness
of the kinds described in any of the preceding clauses (i), (ii), (iv) and (v)
and all renewals or extensions of lease obligations of the kinds described in
either of the preceding clauses (iii) and (iv);
(vii) interest accruing subsequent to the filing of a petition
initiating any bankruptcy, insolvency or similar proceeding with respect to any
indebtedness or lease obligation of the Company;
(viii) all obligations of the Company in respect of any interest rate
or currency swap or similar agreements entered into with any holder of any
Senior Indebtedness; and
(ix) all fees, expenses, reimbursements and other amounts payable to
holders of Senior Indebtedness under the terms of the instrument or lease
creating or evidencing the same,
unless, in the case of any particular indebtedness, lease, renewal, extension,
refunding or refinancing, the instrument or lease creating or evidencing the
same or the assumption or guarantee of the same expressly provides that such
indebtedness, lease, renewal, extension, refunding or refinancing is not senior
in right of payment to the Note or is expressly subordinate by its terms in
right of payment to all other indebtedness of the Company or unless such
indebtedness is owed to any Subsidiary of the Company.
This Section 6 shall constitute a continuing offer to all persons who, in
reliance upon such provisions, become holders of, or continue to hold, Senior
Indebtedness, and such provisions are made for the benefit of the holders of
Senior Indebtedness, and such holders are made obligees hereunder and they
and/or each of them may enforce such provisions in accordance with the
provisions of this Note.
(c) No payment shall be made by the Company of any Subordinated Amounts and
the Holder may not take any action under this Note including declaring an Event
of Default or accelerating the outstanding principal amount of this Note (i) in
the event and during the continuation of any default in the payment (a "Payment
-------
Default") of principal, premium, if any, interest or any other payment due on
- -------
any Senior Indebtedness under or in connection with the instrument, agreement or
lease evidencing such Senior Indebtedness or (ii) in the event of receipt of
written notice by the Holder from the holders of any Senior Indebtedness or the
representatives of default (other than a Payment Default) permitting
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<PAGE>
acceleration of any Senior Indebtedness, unless, in either case, the holders of
the requisite principal amounts of such Senior Indebtedness or their agents
shall not have delivered to the holder of this Note a notice of waiver of the
benefits afforded hereunder and a consent to the making of scheduled payments on
or on account of this Note or taking any other prohibited action until further
notice from such holders or such agents.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, prohibited by the foregoing, shall be received by the
holder of this Note before all Senior Indebtedness is paid in full, or provision
is made for such payment in money in accordance with its terms, such payment or
distribution shall be held in trust for the benefit of and shall be paid over or
delivered to the holders of Senior Indebtedness or their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instrument evidencing any Senior Indebtedness may have been issued, as
their respective interests may appear, for application to the payment of all
Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior
Indebtedness in full in money in accordance with its terms, after giving effect
to any concurrent payment or distribution to or for the hold ers of such Senior
Indebtedness.
(d) Upon any payment by the Company, or distribution of assets of the Company
of any kind or character, whether in cash, property or securities, to creditors
upon any dissolution or winding-up or liquidation or reorganization of the
Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due or to become due upon all
Senior Indebtedness shall first be paid in full, or payment thereof provided for
in money in accordance with its terms, before any payment (other than equity
securities or other securities of the Company or any other entity, the payment
of which is subordinated at least to the extent provided in this Section 6 to
the payment of all Senior Indebtedness that may at the time be outstanding) is
made on account of the principal, or interest on, or other amounts payable in
respect of, this Note including, without limitation, any amount payable in
connection with the redemption of this Note; and upon any such dissolution,
winding-up or liquidation or reorganization any payment by the Company, or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, to which the holder of this Note would be entitled,
except for the provisions of this Section 6, shall be paid by the Company or
by any receiver, trustee in bankruptcy, liquidating trustee, agent or other
Person making such payment or distribution, or by the holder of this Note if
received by them or it, directly to the holders of Senior Indebtedness (pro rata
to such holders on the basis of the respective amounts of Senior Indebtedness
held by such holders) or their representative or representatives, or to the
trustee or trustees under any indenture pursuant to which any instruments
evidencing any Senior Indebtedness may have been issued, as their respective
interests may appear, to the extent necessary to pay all Senior Indebtedness in
full, in money or money's worth, after giving effect to any concurrent payment
or distribution to or for the holders of Senior Indebtedness, before any payment
or distribution is made to the holder of this Note.
12
<PAGE>
(e) If while any Senior Indebtedness is outstanding, any Event of Default
under Section 5(a)(iv) or (v) of this Note occurs, the Holder shall duly and
promptly take such action as any holder of Senior Indebtedness may reasonably
request to collect any payment with respect to this Note for the account of the
holders of the Senior Indebtedness and to file appropriate claims or proofs of
claim in respect of this Note. Upon the failure of the Holder to take any such
action, each holder of Senior Indebtedness is hereby irrevocably authorized and
empowered (in its own name or otherwise), but shall have no obligation, to
demand, sue for, collect and receive every payment or distribution referred to
in respect of this Note and to file claims and proofs of claim and take such
other action as it may deem necessary or advisable for the exercise or
enforcement of any of the rights or interests of the Holder with respect to this
Note.
(f) Subject to the payment in full of all Senior Indebtedness, the rights of
the holder of this Note shall be subrogated to the rights of the holders of
Senior Indebtedness to receive payments or distributions of cash, property or
securities of the Company applicable to the Senior Indebtedness until the
principal and interest on this Note shall be paid in full; and, for the purposes
of such subrogation, no payments or distributions to the holders of the Senior
Indebtedness of any cash, property or securities to which the holder of this
Note would be entitled except for the provisions of this Section 6, and no
payment over pursuant to the provisions of this Section 6, to or for the benefit
of the holders of Senior Indebtedness by the holder of this Note, shall, as
between the Company, its creditors other than holders of Senior Indebtedness,
and the holder of this Note, be deemed to be a payment by the Company to or on
account of the Senior Indebtedness. It is understood that the provi sions of
this Section 6 are and are intended solely for the purpose of defining the
relative rights of the holder of this Note, on the one hand, and the holders of
the Senior Indebtedness, on the other hand.
(g) If any payment or distribution to which the holder of this Note would
otherwise have been entitled but for the provisions of this Section 6 shall have
been applied, pursuant to the provisions of this Section 6 to the payment of
amounts payable under Senior Indebtedness of the Company, then, and in such
case, the holder of this Note shall be entitled to receive from the holders of
Senior Indebtedness the full amount of any such payments or distributions
received by holders of Senior Indebtedness in excess of the amount sufficient to
pay in full all amounts payable under, or in respect of, the Senior Indebtedness
of the Company.
(h) Nothing contained in this Section 6 or elsewhere in this Note is intended
to or shall impair or affect, as between the Company, its creditors other than
the holders of Senior Indebtedness, and the holder of this Note, the obligation
of the Company, which is absolute and unconditional, to pay to the holder of
this Note the principal and interest on this Note as and when the same shall
become due and payable in accordance with its terms, or is intended to or shall
affect the relative rights of the holder of this Note and creditors of the
Company other than the holders of the Senior Indebtedness, nor shall anything
13
<PAGE>
herein or therein prevent the holder of this Note from exercising all remedies
otherwise permitted by applicable law upon default under this Note, subject to
the rights, if any, under this Section 6 of the holders of Senior Indebtedness
in respect of cash, property or securities of the Company received upon the
exercise of any such remedy.
(i) Upon any payment or distribution of assets of the Company referred to in
this Section 6, the holder of this Note shall be entitled to rely upon any order
or decree made by any court of competent jurisdiction in which such dissolution,
winding-up, liquidation or reorganization proceedings are pending, or a
certificate of the receiver, trustee in bankruptcy, liquidation trustee, agent
or other Persons making such payment or distribution, delivered to the holder of
this Note, for the purpose of ascertaining the Persons entitled to participate
in such distribution, the holders of the Senior Indebtedness and other
indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto and
to this Section 6.
(j) The Company shall give prompt written notice to the holder of this Note of
any fact known to the Company that would prohibit the making of any payment to
the holder of this Note.
(k) The holder of this Note shall be entitled to all the rights set forth in
this Section 6 in respect of any Senior Indebtedness at any time held by it, to
the extent as any other holder of Senior Indebtedness, and nothing in this Note
shall deprive the holder of this Note of any of its rights as such holder.
Section 7. Definitions.
-----------
As used herein, the following terms shall have the meanings indicated:
"Affiliate" shall have the meaning ascribed to such term in Rule 12b-2 of the
---------
General Rules and Regulations under the Exchange Act.
"Business Day" shall mean any day other than a Saturday, Sunday or other day
------------
on which commercial banks in the City of New York are authorized or required by
law or executive order to close.
"Common Stock" shall mean the Company's common stock, par value $1.00 per
------------
share.
"Conversion Event" shall mean (i) the consummation of an initial public
----------------
offering of the Common Stock, pursuant to which the aggregate value of all
issued and outstanding shares of Common Stock immediately following the
consummation of such offering is equal to $105,438,402 or greater; (ii) the date
on which Common Stock has an aggregate market capitalization of $105,438,402 or
greater, determined based upon the average of any consecutive ten-day closing
prices as reported by the principal National Securities Exchange, where the
Common Stock is listed or as reported by NASDAQ; or (iii) the date upon which
(A) the Company sells all or substantially all of its assets, (B) any Person
14
<PAGE>
(other than PTI Investor Co. LLC, any of its existing members on the date hereof
or any of their Affiliates) controls equity securities of the Company
representing 50% or more of the combined voting power of the Company's
outstanding shares of capital stock or if any such Person is entitled to elect a
majority of the members of the board of directors of the Company or (C) the
Company consummates any merger or consolidation and as a result of any such
transaction the holders of outstanding shares of capital stock of the Company
immediately prior to such consolidation or merger are not entitled to receive in
the transaction shares representing 50% or more of the combined voting power of
the outstanding shares of capital stock of the resulting or surviving Company
and, in the case of (A), (B) or (C), the valuation of the Common Stock of the
Company on such date (as determined by the Company and the Holder, or if such
parties cannot agree within 10 days, as determined by a nationally recognized
appraiser selected by the Holder and the Company (or if the parties do not agree
upon an appraiser within 10 days, the American Arbitration Association shall
select a nationally recognized investment bank to serve as the appraiser) whose
fees and expenses shall be borne equally) is equal to $105,438,402 or greater.
"Current Market Price" per share shall mean, on any date specified herein for
--------------------
the determination thereof, (a) the average daily Market Price of the Common
Stock for those days during the period of 30 days, ending on such date, on which
the national securities exchanges were open for trading, and (b) if the Common
Stock is not then listed or admitted to trading on any national securities
exchange or quoted in the over-counter market, the Market Price on such date.
"Custodian" shall have the meaning set forth in Section 5 hereof.
---------
"Event of Default" shall have the meaning set forth in Section 5 hereof.
----------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations of the Securities and Exchange Commission thereunder.
"Fair Market Value" shall mean the amount which a willing buyer would pay a
-----------------
willing seller in an arm's-length transaction.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
-------
as amended, and the rules and regulations promulgated thereunder.
"Issue Date" shall mean the first date on which the Note is issued.
----------
"Market Price" shall mean, per share of Common Stock, on any date specified
------------
herein: (a) the closing price per share of the Common Stock on such date
published in The Wall Street Journal or, if no such closing price on such date
is published in The Wall Street Journal, the average of the closing bid and
15
<PAGE>
asked prices on such date, as officially reported on the principal national
securities exchange on which the Common Stock is then listed or admitted to
trading; or (b) if the Common Stock is not then listed or admitted to trading on
any national securities exchange but is designated as a national market system
security by the NASD, the last trading price of the Common Stock on such date;
or (c) if there shall have been no trading on such date or if the Common Stock
is not so designated, the average of the reported closing bid and asked prices
of the Common Stock, on such date as shown by NASDAQ and reported by any member
firm of the New York Stock Exchange selected by the Company; or (d) if none of
(a), (b) or (c) is applicable, a market price per share determined at the
Company's expense by a nationally recognized appraiser chosen by the holder of
the Note and approved by the Company, which approval shall not be unreasonably
withheld. If no such appraiser is so chosen more than twenty business days after
notice of the necessity of such calculation shall have been delivered by the
Company to the holder of the Note, then the appraiser shall be chosen by the
Company.
"Maturity Date" shall mean August 8, 2004.
-------------
"NASD" shall mean the National Association of Securities Dealers, Inc.
----
"NASDAQ" shall mean the National Market System of the National Association of
------
Securities Dealers, Inc. Automated Quotations System.
"Pari Passu Debt" shall mean any debt of the Company, including the Note,
---------------
ranking on a parity (either as to interest or upon liquidation, dissolution or
winding up) with this Note.
"Payment Default" shall have the meaning set forth in Section 6(c) hereof.
---------------
"Person" shall mean any individual, firm, Company, partnership, trust,
------
incorporated or unincorporated association, joint venture, joint stock company,
government (or an agency or political subdivision thereof) or other entity of
any kind, and shall include any successor (by merger or otherwise) of such
entity.
"Senior Indebtedness" shall have the meaning set forth in Section 6 hereof.
-------------------
"Subordinated Amounts" shall have the meaning set forth in Section 6 hereof.
--------------------
"Subsidiary" of any Person shall mean any Company or other entity of which a
----------
majority of the voting power of the voting equity securities or equity interest
is owned, directly or indirectly, by such Person."
16
<PAGE>
Section 8. Miscellaneous.
-------------
(a) GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
-------------
WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE
PERFORMED ENTIRELY WITHIN SUCH STATE.
(b) Waiver of Notice. The Company, to the extent permitted by law, hereby
----------------
waives presentment, demand, notice, protest and all other demands and notices in
connection with delivery, acceptance, performance and enforcement of this Note,
except as specifically otherwise provided herein or in the Purchase Agreement.
(c) Amendment. The principal amount, date of maturity and interest rate of
---------
this Note may be amended only by the written agreement of the holder of this
Note.
PAYROLL TRANSFERS, INC.
By:
-----------------------------------
Name: Michael Marc Moore
Title: Chief Executive Officer
17
<PAGE>
EXHIBIT 10.4
STRATEGIC RELATIONSHIP AGREEMENT
--------------------------------
STRATEGIC RELATIONSHIP AGREEMENT (this "Agreement"), dated as of August 8,
---------
1996, by and between PAYROLL TRANSFERS, INC., a Florida corporation (together
with its subsidiaries and affiliates, the "Company"), and ACCUSTAFF
-------
INCORPORATED, a Florida corporation ("AccuStaff," and together with the Company,
---------
the "Parties");
-------
WHEREAS, the Company and AccuStaff are parties to that certain Purchase
Agreement, dated as of the date hereof, pursuant to which AccuStaff has agreed
to purchase a convertible subordinated note of the Company and is receiving an
option to purchase shares of the Company's Common Stock; and
WHEREAS, the Parties desire to establish a strategic relationship whereby
the Parties will jointly market and promote their respective products and
cooperate in matters of mutual interest.
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Parties hereby agree as follows:
1. Joint Marketing and Cooperation.
-------------------------------
(a) The Parties hereby agree to cooperate in the marketing and promotion of
their respective businesses, which cooperation shall be developed as the
relationship between the Parties evolves. Notwithstanding the foregoing, as of
the date hereof, the Company shall use its commercially reasonable efforts to
direct temporary employment business to AccuStaff and AccuStaff shall use its
commercially reasonable efforts to direct employee leasing business to the
Company, in each case in exchange for a referral fee, which fee shall be
negotiated by the Company and AccuStaff on a case-by-case basis.
(b) In addition, in furtherance of this joint cooperation and marketing
understanding, (i) AccuStaff hereby agrees, from and after the date hereof, (A)
not to enter into any contract, agreement or understanding with any provider of
employee leasing services, other than the Company, which contract, agreement or
understanding contemplates a transaction involving the use of the services of
leased employees without first offering such business opportunity to the Company
for a reasonable period not to exceed 7 days (it being understood that following
such period AccuStaff may enter into an agreement with a third party provider on
terms which are not in good faith materially more favorable than those offered
the Company) and (B) not to market its services as a provider of employee
leasing services and (ii) the Company hereby agrees, from and after the date
hereof, (A) not to enter into any contract, agreement or understanding with any
provider of temporary employee services other than AccuStaff, which contract,
agreement or understanding contemplates a transaction involving the use of the
<PAGE>
services of temporary employees (subject only to an existing agreement between
the Company and a former stockholder of the Company to provide the Company with
approximately 15 temporary employees), without first offering such business
opportunity to AccuStaff for a reasonable period not to exceed 7 days (it being
understood that following such period the Company may enter into such agreement
with a third party provider on terms which are not in good faith materially more
favorable than those offered AccuStaff) and (B) not to market its services as a
provider of temporary employee services.
2. Term. This Agreement shall remain in full force and effect until the
----
earlier of (i) the Parties mutually agree to terminate this Agreement or (ii)
eight (8) years from the date hereof (the "Term").
----
3. Confidentiality. Neither Party shall, except as required by law,
---------------
disclose to any person, firm or corporation any trade secrets or confidential
data or information relating to the business of the other Party, its customers
or its methods of doing business other than information which was or becomes
publicly known, other than as a result of a breach of this Agreement.
4. Assignment. This Agreement, and the benefits which inure hereunder to
----------
both Parties hereto and shall be assignable by each Party only as part of any
sale or transfer by such Party of all or substantially all of its assets to a
successor business entity or a subsidiary or affiliate thereof. This Agreement
shall be fully enforceable by the business entity to which this Agreement is
assigned.
5. GOVERNING LAW. BOTH PARTIES AGREE THAT THE LAWS OF THE STATE OF
-------------
FLORIDA SHALL GOVERN AND BE APPLICABLE IN ANY PROCEEDING CONCERNING THE
INTERPRETATION OF ANY TERM OF THIS AGREEMENT.
6. Indemnification, etc.. Each Party agrees to indemnify and hold
---------------------
harmless the other for and against any damage, loss, liability, claim or suit
(including without limitation, reasonable attorney's fees and legal costs
associated therewith) which it may incur as a result of the other Party's breach
of covenant, default or gross negligence in its performance of the specific
duties covered by this Agreement. Each Party understands that the breach or
threatened breach of any promise, covenant, or restriction contained in this
Agreement will result in irreparable harm to the other Party, and each Party
agrees that in addition to its remedies at law, each Party may seek and obtain a
temporary or preliminary restraining order, preliminary or temporary injunctive
relief, and permanent injunctive relief restraining the breach of the covenants
and provisions hereof in addition to damages sustained by each Party and costs
of suit in enforcing this Agreement, including, but not limited to, reasonable
attorney fees.
7. Entire Agreement. This Agreement supersedes any and all other
----------------
agreements, whether oral or in writing, between the Parties with respect to the
subject matter hereof, and contains all of the covenants and agreements between
the Parties with respect to said matter. Each Party to this Agreement
acknowledges that no representations, inducements, promises, or agreements, oral
or otherwise, have been made by any party, or anyone acting on behalf of any
2
<PAGE>
party, which are not embodied herein, and that no other Agreement, statement, or
promise not contained in this Agreement shall be valid or binding.
8. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
9. Headings. The headings in this Agreement are for reference purposes
--------
only and shall not in any way affect the meaning or interpretation of this
Agreement.
IN WITNESS WHEREOF, the undersigned Parties have agreed hereto as of the
date first written above.
PAYROLL TRANSFERS, INC.
By:
-------------------------------------
Name:
Title:
ACCUSTAFF INCORPORATED
By:
-------------------------------------
Name:
Title:
3
<PAGE>
Exhibit 10.5
REGISTRATION RIGHTS AGREEMENT, dated as of August 8, 1996, by and between
PAYROLL TRANSFERS, INC., a Florida corporation (the "Company") and ACCUSTAFF
-------
INCORPORATED, a Florida corporation ("AccuStaff").
---------
1. Shares of Common Stock. Pursuant to that certain Purchase Agreement,
----------------------
dated as of August 8, 1996, by and between the Company and AccuStaff, AccuStaff
acquired (i) an 8% Subordinated Convertible Note issued by the Company (the
"Note"), which Note, upon exercise, is convertible into 140 shares of common
----
stock, par value $1.00 per share (the "Common Stock"), of the Company and
------------
(ii) an 11-month, 25-day option (the "Option") granted pursuant to an Option
------
Agreement, dated as of the date hereof, between the Company and AccuStaff to
acquire an additional 176 shares of Common Stock. The shares of Common Stock
issuable upon conversion of the Note or exercise of the Option are referred to
herein as the "Shares." This Agreement governs the rights of AccuStaff with
------
respect to the registration of the Shares under the Securities Act. Capitalized
terms used herein but not otherwise defined shall have the meanings given them
in Section 3.
2. Registration Under Securities Act, etc.
---------------------------------------
2.1 Demand Registration.
-------------------
(a) Demand. At any time and from time to time after the first
------
anniversary of the consummation by the Company of an initial public offering of
shares of Common Stock, AccuStaff (the "Initiating Holder") may, upon written
-----------------
request, require the Company to effect the registration under the Securities Act
of all or part of the Registrable Securities held by such Initiating Holder;
provided, however, that the Initiating Holder may not effect a registration of
- -------- -------
the Registrable Securities under this Section 2.1 on more than one occasion.
Notwithstanding the foregoing, the Company shall not be required to honor a
request made pursuant to this Section 2.1 unless the number of Shares to be
offered for sale by the Initiating Holder (together with the number of Shares to
be offered for sale by other holders of Registrable Securities whom the
Initiating Holder has notified the Company intend to piggyback on such request
in accordance with Section 2.2 hereof) pursuant to such request shall have a
market value on the date of such request of greater than $10,000,000. The
Company will (and in any event within 10 business days) promptly give written
notice of such requested registration to all other holders of Common Stock, who
are entitled to include shares of Common Stock in such registration, and
thereupon the Company will use its best efforts to effect, at the earliest
possible date, the effective registration under the Securities Act, including,
without limitation, by means of a shelf registration on Form S-3 (or any
successor form) pursuant to Rule 415 under the Securities Act if so requested in
such request (but only if the Company is then eligible to use such a shelf
registration and Form S-3 (or such successor form) is available to the Company),
of (i) the Registrable Securities that the Company has been requested to
register by the Initiating Holder, and (ii) all other shares of
<PAGE>
Common Stock that the Company wishes to register or has been requested to
register by the holders thereof (such holders together with the Initiating
Holders hereinafter are referred to as the "Selling Holders") by written request
---------------
given to the Company within 30 days after the giving of such written notice by
the Company, all to the extent requisite to permit the disposition of the shares
of Common Stock so to be registered.
(b) Registration Statement Form. Registrations under this Section 2.1
---------------------------
shall be on such appropriate form of registration statement of the Commission as
shall be reasonably selected by the Company.
(c) Effective Registration Statement. A registration requested
--------------------------------
pursuant to this Section 2.1 shall not be deemed to have been effected with
respect to any Selling Holder (i) unless a registration statement with respect
to shares of Common Stock requested to be included therein by such Selling
Holder has become effective and remained effective in compliance with the
provisions of the Securities Act and applicable state securities laws and until
such time as all of such shares of Common Stock covered thereby have been
disposed of in accordance with the intended methods of disposition as set forth
in such registration statement (unless the failure to so dispose of such shares
of Common Stock shall be caused solely by reason of a failure on the part of
such Selling Holder); provided, however, that except with respect to any
-------- -------
registration statement filed pursuant to Rule 415 under the Securities Act, such
period need not exceed 120 days and with respect to a registration statement
filed pursuant to Rule 415, such period need not exceed one year, (ii) if, after
it has become effective, such registration is interfered with by any stop order,
injunction or other order or requirement of the Commission or other governmental
agency or court for any reason not attributable to such Selling Holders and has
not thereafter become effective (and the shares of Common Stock covered thereby
disposed of in accordance with (i) above) or (iii) if the conditions to closing
specified in the underwriting agreement, if any, entered into in connection with
such registration are not satisfied or waived, other than by reason of a failure
on the part of such Selling Holders.
(d) Selection of Underwriters. If the Company or the Initiating
-------------------------
Holder desires to engage an underwriter or underwriters with respect to an
offering of Registrable Securities effected pursuant to this Section 2.1, such
underwriter or underwriters shall be selected by the Initiating Holder and shall
be reasonably acceptable to the Company.
(e) Priority in Demand Registration. If the managing underwriter of
-------------------------------
any underwritten offering effected pursuant to this Section 2.1 shall advise the
Company in writing (and the Company shall so advise each Selling Holder of such
advice) that, in its opinion, the number of securities requested to be included
in the registration statement exceeds the number that can be sold in such
offering within a price range acceptable to the Initiating Holders of the
Company, except as provided in the following sentence, will include in such
registration statement, to the
2
<PAGE>
extent of the number and type that the Company is so advised can be sold in such
offering, first, Registrable Securities requested to be included in such
-----
registration by the Initiating Holders and second, pro rata among the remaining
------
Selling Holders requesting such registration all shares of Common Stock proposed
to be sold by the Company for its own account, on the basis of the estimated
gross proceeds from the sale thereof. If all of the Registrable Securities
requested by the Initiating Holders be included in such registration cannot be
included, the Initiating Holders shall have the right to withdraw the request
for registration by giving written notice to the Company within 20 days after
receipt of notice thereof by the Company and, in the event of such withdrawal,
such request shall not be counted for purposes of the demand for registration to
which holders of Registrable Securities are entitled pursuant to Section 2.1
hereof.
(f) Delay. Notwithstanding anything herein to the contrary, if, after
-----
an Initiating Holder has given a written request under Section 2.1, and prior to
the effective date of the registration statement filed in response to such
request, the Board of Directors of the Company shall determine in its good faith
judgment that the filing of such registration statement (i) would have an
adverse effect on a then contemplated public offering of the Company's
securities; (ii) would require the disclosures to be made by the Company in
connection with such registration that would be materially harmful to the
Company because of transactions then being considered by, or other events then
concerning, the Company; (iii) would require the inclusion of pro forma or other
information, which requirement the Company is reasonably unable to comply with
without incurring material expense; and (iv) would interfere with any material
financing, investment, acquisition, corporate reorganization or other material
corporate transaction then under consideration, then, in such case, the Company
may decide to delay such registration, and if the Board of Directors of the
Company makes such determination, the Company shall give written notice of such
determination to the Initiating Holder and each other Selling Holder. Such delay
shall be for the period the Company determines in good faith on the basis
provided above is necessary or desirable, but in no event longer than six
months. Notwithstanding the foregoing, in no event may the Company exercise its
right to delay registration more than once in any 12 month period. The Company
shall notify the Selling Holders of the expiration of the period of delay.
Following such delay, the Company shall promptly cause the Registrable
Securities to be registered unless, within 15 days of receipt of notice from the
Company of the end of such delay, the Initiating Holder withdraws its written
request made pursuant to Section 2.1, in which case such written demand will not
be considered a demand for registration for the purposes thereof.
(g) Expenses. The Company will pay all Registration Expenses (except
--------
for any underwriting commissions or discounts) in connection with any
registration requested pursuant to this Section 2.1; provided, however, that the
-------- -------
Company will not be required to pay the Registration Expenses with respect to
any registration the request for which has been withdrawn pursuant to Section
2.1(e).
3
<PAGE>
2.2 Piggyback Registration.
----------------------
(a) Right to Include Registrable Securities. If the Company at any
---------------------------------------
time following the consummation of the initial public offering of the Company's
Common Stock proposes to register any securities under the Securities Act on any
form other than Forms S-4 or S-8 or their successor forms, whether or not for
sale for its own account, it will each such time give prompt written notice to
all registered holders of Registrable Securities of its intention to do so and
of such holders' rights under this Section 2.2. Upon the written request of any
such holder (a "Requesting Holder"), made as promptly as practicable and in any
-----------------
event within 15 days after the receipt of any such notice (10 days if the
Company states in such written notice or gives telephonic or telecopied notice
to all registered holders of Registrable Securities, with written confirmation
to follow promptly thereafter, stating that such shorter period of time is
required because of a planned filing date) (which request shall specify the
Registrable Securities intended to be disposed of by such Requesting Holder),
the Company will use its reasonable commercial efforts to effect the
registration under the Securities Act of all Registrable Securities that the
Company has been so requested to register by the Requesting Holders thereof;
provided, however, that if, at any time after giving written notice of its
- -------- -------
intention to register any securities under the Securities Act and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register or, in
accordance with Section 2.1(f), to delay registration of such securities, the
Company shall give written notice of such determination to each Requesting
Holder of Registrable Securities and (i) in the case of a determination not to
register, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from any obligation of
the Company to pay the Registration Expenses in connection therewith), without
prejudice, however, to the rights of any holder or holders of Registrable
Securities entitled to do so to cause such registration to be effected as a
registration under Section 2.1, and (ii) in the case of a determination to delay
registering, shall be permitted to delay registering any Registrable Securities
for the same period as permitted under Section 2.1(f); provided, however, that
-------- -------
the Company shall notify the Requesting Holders of the expiration of the period
of delay and, following such delay, shall promptly cause the Registrable
Securities requested to be registered by the Requesting Holders to be registered
unless, within 10 days of receipt of notice from the Company at the end of such
delay, the Requesting Holders withdraw the written request made pursuant to this
Section 2.2. No registration effected under this Section 2.2 shall relieve the
Company of its obligation to effect any registration upon request under Section
2.1.
(b) Priority in Incidental Registrations. If the managing underwriter
------------------------------------
of any underwritten offering shall inform the Company in writing of its opinion
that the number or type of Registrable Securities requested to be included in a
registration statement pursuant to this Section 2.2 would materially and
adversely affect such offering, and the Company has so advised the Requesting
Holders in writing, then the Company will include securities in such
registration
4
<PAGE>
statement, to the extent of the number and type that the Company is so advised
can be sold in (or during the time of) such offering, if such offering has been
requested in accordance with Section 2.1, then in accordance with the priority
provisions set forth in Section 2.1(e) hereof. If the offering at issue is not
subject to Section 2.1, the Company shall include in such registration
statement, first, all securities proposed to be sold by the Company for its own
-----
account, second, if such offering has been requested by a Person pursuant to any
------
registration rights agreement between the Company and such Person and by the
terms of such registration rights agreement the securities subject to such
registration rights agreement must be included in such registration prior to
those held by the Requesting Holders, the securities requested to be included in
such offering by such person and, third, Registrable Securities requested to be
-----
included in such registration pursuant to this Section 2.2, pro rata among the
Requesting Holders and any other Persons with similar piggyback rights, based
upon the estimated proceeds from the sale thereof.
(c) Expenses. The Company will pay all Registration Expenses in
--------
connection with any registration effected pursuant to this Section 2.2.
2.3 Registration Procedures. If and whenever the Company is
-----------------------
required to register any Registrable Securities under the Securities Act
pursuant to Sections 2.1 or 2.2, the Company will, as expeditiously as possible:
(i) prepare and (within 90 days after the end of the period within
which requests for registration may be given to the Company and in any event as
soon thereafter as practicable) file with the Commission a registration
statement on the appropriate form to effect such registration and thereafter use
its best efforts to cause such registration statement to become effective;
provided, however, that the Company may discontinue or delay any registration of
- -------- -------
securities that are not Registrable Securities (and, under the circumstances
specified in Section 2.2(a), securities that are Registrable Securities) at any
time prior to the effective date of the registration statement relating thereto;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities covered by such registration statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof set forth in such registration statement; provided, however, that except
-------- -------
with respect to any such registration statement filed pursuant to Rule 415 under
the Securities Act, such period need not exceed 135 days;
5
<PAGE>
(iii) furnish to each seller of Registrable Securities covered
by such registration statement, such number of conformed copies of such
registration statement and of each amendment and supplement thereto (in each
case including all exhibits and documents incorporated by reference therein),
such number of copies of the prospectus contained in such registration statement
(including each preliminary prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the Securities Act, in conformity with the
requirements of the Securities Act, and such other documents, as such seller may
reasonably request;
(iv) use its best efforts (x) to register or qualify all Registrable
Securities and other securities covered by such registration statement under
such other securities or blue sky laws of such States of the United States of
America where an exemption is not available and as the sellers of Registrable
Securities covered by such registration statement shall reasonably request, (y)
to keep such registration or qualification in effect for so long as such
registration statement remains in effect and (z) to take any other action that
may be reasonably necessary or advisable to enable such sellers to consummate
the disposition in such jurisdictions of the securities to be sold by such
sellers, except that the Company shall not for any such purpose be required to
qualify generally to do business as a foreign corporation in any jurisdiction
wherein it would not but for the requirements of this subdivision (iv) be
obligated to be so qualified or to consent to general service of process in any
such jurisdiction;
(v) use its best efforts to cause all Registrable Securities covered
by such registration statement to be registered with or approved by such other
federal or state governmental agencies or authorities as may be necessary in the
opinion of counsel to the Company and counsel to the seller or sellers of
Registrable Securities to enable the seller or sellers thereof to consummate the
disposition of such Registrable Securities;
(vi) in the case of an underwritten or "best efforts" offering,
furnish at the effective date of such registration statement to each Selling
Holder, and such Person's underwriters, if any, a signed counterpart of:
(x) an opinion of counsel for the Company, dated the effective
date of such registration statement and, if applicable, the date of the closing
under the underwriting agreement, and
(y) a "comfort" letter signed by the independent public
accountants who have certified the Company's financial statements included or
incorporated by reference in such registration statement, covering substantially
the same matters with respect to such registration statement (and the prospectus
included therein) and, in the case of the accountants' comfort letter, with
respect to events subsequent to the date of such financial statements, as are
customarily covered in opinions of issuer's counsel and in accountants' comfort
letters delivered to the underwriters in underwritten public offerings of
securities and, in the case of the accountants' comfort letter, such other
financial matters, and, in the case of the legal opinion, such other legal
matters, as the underwriters may reasonably request;
(vii) notify each seller of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, upon discovery that, or upon
the happening of any event as a result of which, the prospectus included in such
6
<PAGE>
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, in the light of the
circumstances under which they were made, and at the request of any such seller
promptly prepare and furnish to it a reasonable number of copies of a supplement
to or an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made;
(viii) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and, if required, make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least 12 months, but not more than 18 months,
beginning with the first full calendar month after the effective date of such
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 promulgated thereunder, and
promptly furnish to each such seller of Registrable Securities a copy of any
amendment or supplement to such registration statement or prospectus;
(ix) provide and cause to be maintained a transfer agent and
registrar (which, in each case, may be the Company) for all Registrable
Securities covered by such registration statement from and after a date not
later than the effective date of such registration statement;
(x) use its best efforts to list all Registrable Securities covered
by such Registration Statement on any national securities exchange on which
securities of the same class as those requested to be included in such
registration statement are then listed (or, if such securities are not listed on
a national securities exchange but are quoted on The Nasdaq Stock Market, to
include such shares for quotation therein);
(xi) enter into such customary agreements (including an underwriting
agreement in customary form, including customary provisions concerning
indemnification of the underwriters by the Company) and take such other actions
as the sellers of Registrable Securities and the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities;
(xii) notify each seller of Registrable Securities and the managing
underwriter or agent, immediately, and confirm the notice in writing (a) when
the registration statement, or any post-effective amendment to the registration
statement, shall have become effective, or any supplement to the prospectus or
any amendment to the prospectus shall have been filed, (b) of the receipt of any
comments from the Commission, (c) of any request of the Commission to amend the
registration statement or amend or supplement the prospectus or for additional
information, and (d) of the issuance by the Commission of any stop order
suspending the effectiveness of the registration statement or of any order
7
<PAGE>
preventing or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Registrable Securities for sale in any
jurisdiction, or of the institution or threatening of any proceedings for any
such purposes; and
(xiii) use its best efforts to take all other steps necessary or
advisable to effect the registration of the Registrable Securities contemplated
hereby.
The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish the Company in a reasonably prompt
manner such information regarding such seller and such seller's intended
distribution of such securities as the Company may from time to time reasonably
request in writing.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in subdivision (vii) of this
Section 2.3, such holder will forthwith discontinue such holder's disposition of
Registrable Securities pursuant to the registration statement relating to such
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (vii) of this
Section 2.3 and, if so directed by the Company, will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies, then in
such holder's possession of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice.
2.4 Preparation; Reasonable Investigation. In connection with the
-------------------------------------
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the holders of Registrable
Securities registered under such registration statement, their underwriters, if
any, and one counsel selected by such holders the opportunity to participate in
the preparation of such registration statement, each prospectus included therein
or filed with the Commission, and each amendment thereof or supplement thereto,
and will give each of them such reasonable access to its books and records and
such opportunities to discuss the business of the Company with its officers and
the independent public accountants who have certified its financial statements
as shall be necessary, in the opinion of such holders' and such underwriters'
respective counsel, to conduct a reasonable investigation within the meaning of
the Securities Act.
2.5 Rule 144. When and for so long as the Common Stock shall be
--------
registered pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), the Company will file the reports
required to be filed by it under the Exchange Act and will take such further
action as any holder may reasonably request, all to the extent required from
time to time to enable such holder to sell Registrable Securities without
8
<PAGE>
registration under the Securities Act under the exemptions provided by Rule 144,
as such rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission. Upon the request of any holder, the
Company will deliver to such Holder a written statement as to whether it has
complied with such requirements and, if it has not so complied, stating that it
will promptly do so.
2.6 Hold-Back. At the request of the Company, AccuStaff, in the
---------
event the Company effects an underwritten public offering (including, without
limitation, its initial public offering), agrees, if requested by the managing
underwriter or underwriters for such underwritten offering not to effect (except
as part of such underwritten offering) any public sale or distribution of
Registrable Securities, including a sale pursuant to Rule 144, during the period
commencing 7 days prior to and ending more than 180 days (with respect to an
initial public offering and 90 days for any other public offering) subsequent to
the date of the execution of an underwriting or pricing agreement with respect
to such underwritten offering; provided, that, the Company shall not exercise
-------- ----
its hold-back right more often than once per year and this right shall terminate
if AccuStaff owns less than 5% of the Common Stock (assuming conversion of the
Note and the exercise of the Option).
2.7 Indemnification.
---------------
(a) Indemnification by the Company. The Company will, and hereby
------------------------------
does, indemnify and hold harmless, in the case of any registration statement
filed pursuant to Section 2.1, or 2.2, each seller of any Registrable Securities
covered by such registration statement and each other Person who participates as
an underwriter in the offering or sale of such securities and each other Person,
if any, who controls such seller or any such underwriter within the meaning of
the Securities Act, and their respective directors, officers, partners, members
and agents, against any losses, claims, damages or liabilities, joint or
several, to which such seller or underwriter or any such director, officer,
partner, member, agent or controlling person may become subject under the
Securities Act, any state securities law or "blue sky" law, any applicable rule
or regulation or otherwise, including, without limitation, the fees and expenses
of legal counsel (including those incurred in connection with any claim for
indemnity hereunder), insofar as such losses, claims, damages or liabilities (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any registration statement under which such
securities were registered under the Securities Act, any preliminary prospectus,
final prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein in light of the circumstances in which they were made not misleading
under the Securities Act, any state securities law or "blue sky" law, any
applicable rule or regulation or otherwise, and the Company will reimburse such
seller or underwriter and each such director, officer, partner, member and
controlling Person for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any
such loss, claim,
9
<PAGE>
liability, action or proceeding; provided, however, that the Company shall not
-------- -------
be liable in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of such seller or underwriter, as the case may be,
specifically stating that it is for use in the preparation thereof; and provided
--------
further, that the Company shall not be liable to any Person who participates as
- -------
an underwriter in the offering or sale of Registrable Securities or any other
Person, if any, who controls such underwriter within the meaning of the
Securities Act, in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of such Person's failure to send or give a copy of the final prospectus, as
the same may be then supplemented or amended, to the Person asserting an untrue
statement or alleged untrue statement or omission or alleged omission at or
prior to the written confirmation of the sale of Registrable Securities to such
Person if such statement or omission was corrected in such final prospectus.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such seller or any such director, officer,
partner, member, agent or controlling person and shall survive the transfer of
such securities by such seller.
(b) Indemnification by the Sellers. As a condition to including any
------------------------------
Registrable Securities in any registration statement, the Company shall have
received an undertaking satisfactory to it from the prospective seller of such
Registrable Securities, to indemnify and hold harmless (in the same manner and
to the same extent as set forth in Section 2.7(a)) the Company, and each
director of the Company, each officer of the Company and each other Person, if
any, who participates as an underwriter in the offering or sale of such
securities and each other Person who controls the Company or any such
underwriter within the meaning of the Securities Act, with respect to any
statement or alleged statement in or omission or alleged omission from such
registration statement, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, if such
statement or alleged statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the
Company by such seller specifically stating that it is for use in the
preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement; provided, however, that
-----------------
the liability of such indemnifying party under this Section 2.7(b) shall be
limited to the amount of the net proceeds received by such indemnifying party in
the offering giving rise to such liability. Such indemnity shall remain in full
force and effect, regardless of any investigation made by or on behalf of the
Company or any such director, officer or controlling person and shall survive
the transfer of such securities by such seller.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified
-----------------------
party of notice of the commencement of any action or proceeding involving a
claim referred to in Section 2.7(a) or (b), such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party, give
written notice to the latter of the
10
<PAGE>
commencement of such action; provided, however, that the failure of any
-----------------
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding subdivisions of this
Section 2.7, except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice. In case any such action shall be
brought against any indemnified party and it shall notify the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it may wish, to assume the defense
thereof, with counsel reasonably satis factory to such indemnified party;
provided, however, that any indemnified party may, at its own expense, retain
- -------- -------
separate counsel to participate in such defense. Notwithstanding the foregoing,
in any action or proceeding in which both the Company and an indemnified party
is a party, such indemnified party shall have the right to employ separate
counsel at the Company's expense and to control its defense of such action or
proceeding if the named parties to any such action, suit or proceeding include
both the indemnified party in the Company and such indemnified party shall have
been advised by its counsel that in such counsel's opinion representation of
such indemnified party and the Company by the same counsel would be
inappropriate under applicable standards of professional conduct due to actual
potential differing interests between them; provided, however, that in no
-----------------
event shall the Company be required to pay fees and expenses under this
Section 2.7 for more than one firm of attorneys in any jurisdiction
in any one legal action or group of related legal actions. No indemnifying
party shall be liable for any settlement of any action or proceeding effected
without its written consent, which consent shall not be unreasonably withheld.
No indemnifying party shall, without the consent of the indemnified party,
consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
to such claim or litigation or which requires action other than the payment of
money by the indemnifying party.
(d) Contribution. If the indemnification provided for in this Section
------------
2.7 shall for any reason be held by a court to be unavailable to an indemnified
party under Section 2.7(a) or (b) hereof in respect of any loss, claim, damage
or liability, or any action in respect thereof, then, in lieu of the amount paid
or payable under Section 2.7(a) or (b), the indemnified party and the
indemnifying party under Section 2.7(a) or (b) shall contribute to the aggregate
losses, claims, damages and liabilities (including legal or other expenses
reasonably incurred in connection with investigating the same, including those
incurred in connection with any claim for indemnity hereunder), (i) in such
proportion as is appropriate to reflect the relative fault of the Company and
the seller or prospective seller of Registrable Securities covered by the
registration statement which resulted in such loss, claim, damage or liability,
or action or proceeding in respect thereof, with respect to the statements or
omissions which resulted in such loss, claim, damage or liability, or action or
proceeding in respect thereof, as well as any other relevant equitable
considerations or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as shall be appropriate to
reflect the relative benefits received by the Company and such seller or
prospective seller from the offering of the securities covered by such
registration statement; provided, however, that for purposes hereof, in no event
-------- -------
shall the liability of any seller or prospective seller exceed the amount of
proceeds received by such seller or prospective
11
<PAGE>
seller. No Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
Person who was not guilty of such fraudulent misrepresentation. A Seller's or
prospective seller's obligation to contribute as provided in this Section 2.7(d)
are several in proportion to the relative value of its Registrable Securities
covered by such registration statement and not joint. In addition, no Person
shall be obligated to contribute hereunder any amounts in payment for any
settlement of any action or claim effected without such Person's consent, which
consent shall not be unreasonably withheld.
(e) Indemnification Payments. The indemnification and contribution
------------------------
required by this Section 2.7 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
3. Definitions. As used herein, unless the context otherwise requires,
-----------
the following terms have the following respective meanings:
"Affiliate" means, with respect to any Person, any other Person
---------
controlling, controlled by or under common control with such Person.
"Commission" means the Securities and Exchange Commission.
----------
"Common Stock" shall mean and include the Common Stock, par value $1.00
------------
per share, of the Company and each other class of capital stock of the Company
that does not have a preference over any other class of capital stock of the
Company as to dividends or upon liquidation, dissolution or winding up of the
Company and, in each case, shall include any other class of capital stock of the
Company into which such stock is reclassified or reconstituted.
"Initiating Holder" is defined in Section 2.1.
-----------------
"Person" means any individual, firm, corporation, partnership, limited
------
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Registrable Securities" means (a) any Shares and (b) any securities of
----------------------
the Company issued or issuable with respect to any Shares by way of a dividend
or stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise. As to any
particular Registrable Securities, once issued, such securities shall cease to
be Registrable Securities when (A) a registration statement with respect to the
sale of such securities shall have become effective under the Securities Act and
such securities shall have been disposed of in accordance with such registration
statement, (B) they shall have been otherwise transferred, new certificates for
them not bearing a legend restricting further transfer shall have been delivered
by the
12
<PAGE>
Company and subsequent public distribution of them shall not, in the
opinion of counsel for the holders, require registration of them under the
Securities Act, (C) such Registrable Securities are permitted to be disposed of
pursuant to Rule 144 (or any successor to such rule) under the Securities Act or
(D) they shall have ceased to be outstanding.
"Registration Expenses" means all expenses incident to the Company's
---------------------
performance of or compliance with Section 2, including, without limitation, all
registration and filing fees, all fees of national securities exchanges or the
National Association of Securities Dealers, Inc., all fees and expenses of
complying with securities or blue sky laws, all word processing, duplicating and
printing expenses, messenger and delivery expenses, the fees and disbursements
of counsel for the Company and of its independent public accountants, including
the expenses of "cold comfort" letters required by or incident to such
performance and compliance, any fees and disbursements of underwriters
customarily paid by issuers or sellers of securities (excluding any underwriting
discounts or commissions with respect to the Registrable Securities) and the
reasonable fees and expenses of one counsel to the Selling Holders (selected by
Selling Holders representing at least 50% of the Registrable Securities covered
by such registration); provided, however, that in connection with a registration
-------- -------
pursuant to Section 2.2, the expenses of such counsel shall not exceed $50,000.
Notwithstanding the foregoing, in the event the Company shall determine, in
accordance with Section 2.2, not to register any securities with respect to
which it had given written notice of its intention to so register to holders of
Registrable Securities, all of the costs of the type (and subject to any
limitation to the extent) set forth in this definition and incurred by
Requesting Holders in connection with such registration on or prior to the date
the Company notifies the Requesting Holders of such determination shall be
deemed Registration Expenses.
"Requesting Holder" is defined in Section 2.2.
-----------------
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Selling Holder" is defined in Section 2.1.
--------------
4. Amendments and Waivers. This Agreement may be amended with the
----------------------
written consent of the Company and holders of a majority of the Registrable
Securities and the Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, only if the Company shall
have obtained the written consent to such amendment, action or omission to act,
of the holder or holders of at least a majority of the Registrable Securities
affected by such amendment, action or omission to act. Each holder of any
Registrable Securities at the time or thereafter outstanding shall be bound by
any consent authorized by this Section 4, whether or not such Registrable
Securities shall have been marked to indicate such consent.
5. Nominees for Beneficial Owners. In the event that any Registrable
------------------------------
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election in writing delivered to the
Company, be treated as the holder of such Registrable Securities for purposes of
any request or other
13
<PAGE>
action by any holder or holders of Registrable Securities pursuant to this
Agreement or any determination of any number or percentage of shares of
Registrable Securities held by any holder or holders of Registrable Securities
contemplated by this Agreement. If the beneficial owner of any Registrable
Securities so elects, the Company may require assurances reasonably satisfactory
to it of such owner's beneficial ownership of such Registrable Securities.
6. Notices. All notices, demands and other communications provided
-------
for, required or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, courier
services, overnight mail, in each case postage prepaid, personal delivery or
facsimile transmission. Any such notice or communication shall be deemed to have
been duly given (i) when delivered by hand, if personally delivered or when by
facsimile transmission, if receipt is confirmed by telephone the same day, (ii)
when delivered by courier or overnight mail, if delivered by a commercial
carrier service or overnight mail and (iii) 5 days after being deposited in the
mail; provided, that in all cases, confirmation by telephone or facsimile of
--------
receipt thereof has been obtained:
If to the Company:
Payroll Transfers, Inc.
3710 Corporex Drive
Suite 300
Tampa, Florida
Attention: President
Telephone: (813) 664-0404
Telecopy: (813) 621-6816
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Matthew Nimetz, Esq.
Telephone: (212) 373-3000
Telecopy: (212) 757-3990
14
<PAGE>
If to AccuStaff:
AccuStaff Incorporated
6440 Atlantic Boulevard
Jacksonville, Florida 32211
Attention: Derek Dewan, President
Telephone: (904) 725-5374
Telecopy: (904) 725-8513
with a copy to:
Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attention: Timothy Mann, Esq.
Telephone: (404) 881-7000
Telecopy: (404) 881-7777
or to such address as a party may instruct by notice provided in accordance
herewith (which address will be provided promptly by the Company upon the
request of any party hereof).
7. Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of and be enforceable by the parties hereto and AccuStaff may assign
this Agreement to any of its Affiliates and to any holder of at least 5% of
Registrable Securities (and, with respect to the holders of Registrable
Securities, subject to the provisions respecting the minimum percentage of
Shares required in order to be entitled to certain rights, or take certain
actions, contained herein).
8. Remedies. Each holder of Registrable Securities, in addition to
--------
being entitled to exercise all rights granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
9. Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the
AccuStaff shall be enforceable to the fullest extent permitted by law.
15
<PAGE>
10. Entire Agreement. This Agreement is the final expression of the
----------------
parties' agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, warranties or
undertakings other than those set forth or referred to herein and therein. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to such subject matter.
11. Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
12. Termination. This Agreement shall terminate with respect to
-----------
AccuStaff or any of its permitted assignees when it no longer owns any
Registrable Securities.
13. GOVERNING LAW. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the state of New York applicable to agreements made
and to be performed entirely within such state.
14. Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which when so executed shall be deemed an original and all
of which taken together shall constitute one and the same instrument.
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective representatives hereunto duly
authorized as of the date first above written.
PAYROLL TRANSFERS, INC.
By:
-------------------------------------
Name:
Title:
ACCUSTAFF INCORPORATED
By:
-------------------------------------
Name:
Title:
17
<PAGE>
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
ACCUSTAFF INCORPORATED AND SUBSIDIARIES
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ ------------------
SEPT. 30, OCT. 1, SEPT. 30, OCT 1,
1996 1995 1996 1995
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Weighted average number of
common shares outstanding........... 65,960 35,227 60,285 35,130
Additional shares deemed outstanding
for:
Employee options..................... 2,757 1,368 3,187 1,169
Director options..................... 70 88 99 76
Convertible debt..................... 727 2,894 1,293 2,892
------- ------- ------- -------
Primary and fully diluted weighted
average number of common and
common share equivalents outstanding. 69,514 39,577 64,864 39,267
======= ======= ======= =======
Pro forma net income.................... $11,594 $ 3,200 $22,366 $ 7,553
======= ======= ======= =======
Add back of interest expense
attributable to convertible debentures $ 15 $ 30 $ 55 $ 85
deemed converted....................... ------- ------- ------- -------
Pro forma net income attributable
to common shares........................ $11,609 $ 3,230 $22,421 $ 7,638
======= ======= ======= =======
Pro forma earnings per share of common
and common share equivalents............ $0.17 $0.08 $0.35 $0.19
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 130,389
<SECURITIES> 0
<RECEIVABLES> 120,341
<ALLOWANCES> (1,404)
<INVENTORY> 0
<CURRENT-ASSETS> 258,136
<PP&E> 23,246
<DEPRECIATION> 9,893
<TOTAL-ASSETS> 518,874
<CURRENT-LIABILITIES> 48,892
<BONDS> 0
0
0
<COMMON> 660
<OTHER-SE> 454,041
<TOTAL-LIABILITY-AND-EQUITY> 518,874
<SALES> 218,810
<TOTAL-REVENUES> 218,810
<CGS> 169,876
<TOTAL-COSTS> 169,876
<OTHER-EXPENSES> 30,148
<LOSS-PROVISION> 777
<INTEREST-EXPENSE> 369
<INCOME-PRETAX> 19,004
<INCOME-TAX> 7,410
<INCOME-CONTINUING> 11,594
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,594
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
