<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended APRIL 18, 1998
Commission file number 0-24990
WESTERN STAFF SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-1266151
(State or other jurisdiction (I.R.S.employer
of incorporation or organization) identification number)
301 LENNON LANE
WALNUT CREEK, CALIFORNIA 94598-2453
(925) 930-5300
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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:
Class Outstanding at June 1, 1998
-------------- ---------------------------
Common Stock, $.01 par value 15,507,518 shares
<PAGE>
WESTERN STAFF SERVICES, INC. AND SUBSIDIARIES
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
April 18, 1998 and November 1, 1997 3
Condensed Consolidated Statements of Operations -
12 and 24 weeks ended April 18, 1998 and April 19, 1997 4
Condensed Consolidated Statements of Cash Flows -
24 weeks ended April 18, 1998 and April 19, 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WESTERN STAFF SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
APRIL 18, NOVEMBER 1,
1998 1997
----------------- -----------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,755 $ 4,796
Trade accounts receivable, less allowance for doubtful
accounts of $928 and $879 91,487 96,502
Due from licensees 7,676 6,825
Deferred income taxes 2,918 2,511
Other current assets 3,958 3,421
----------------- -----------------
Total current assets 109,794 114,055
Property, plant and equipment, net 19,115 19,583
Deferred income taxes 1,620 143
Intangible assets, net 24,227 19,181
Other assets 2,252 1,568
----------------- -----------------
$ 157,008 $ 154,530
----------------- -----------------
----------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ $ 19,700
Current portion of loans payable 3,850 625
Current portion of note payable to related party 972 973
Accounts payable and accrued expenses 40,844 42,787
Income taxes payable 833 4,786
----------------- ---------------
Total current liabilities 46,499 68,871
Loans payable 37,417 16,659
Note payable to related party 972
Deferred income taxes 494
Other long-term liabilities 10,288 10,238
----------------- ---------------
Total liabilities 94,204 97,234
----------------- ---------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; authorized and unissued: 1,000 shares
Common stock, $.01 par value; authorized: 25,000 shares; issued:
15,510 shares at April 18, 1998 and 15,507 at November 1, 1997 103 103
Additional paid-in-capital 29,378 29,073
Retained earnings 33,930 28,994
Cumulative currency translation (574) (89)
----------------- ---------------
62,837 58,081
Less treasury stock at cost, 3 shares at April 18, 1998 and 114 shares
at November 1, 1997 33 785
----------------- ---------------
Total stockholders' equity 62,804 57,296
----------------- ---------------
$ 157,008 $ 154,530
----------------- ---------------
----------------- ---------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
WESTERN STAFF SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
12 WEEKS ENDED 24 WEEKS ENDED
--------------------- -------------------------
APRIL 18, APRIL 19, APRIL 18, APRIL 19,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales of services $ 142,028 $ 122,486 $ 282,730 $ 241,132
License fees 537 480 990 799
---------- ---------- ---------- ----------
Total sales of services and license fees 142,565 122,966 283,720 241,931
Costs of services 110,502 97,187 220,580 191,938
---------- ---------- ---------- ----------
Gross profit 32,063 25,779 63,140 49,993
Franchise agents' share of gross profit 4,616 4,495 9,660 8,981
Selling and administrative expenses 20,758 17,429 40,913 33,901
Depreciation and amortization 1,612 1,349 3,173 2,584
---------- ---------- ---------- ----------
Operating income 5,077 2,506 9,394 4,527
Interest expense 661 333 1,335 611
Interest income (84) (64) (167) (218)
---------- ---------- ---------- ----------
Income before income taxes 4,500 2,237 8,226 4,134
Provision for income taxes 1,800 895 3,290 1,654
---------- ---------- ---------- ----------
Net income $ 2,700 $ 1,342 $ 4,936 $ 2,480
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic earnings per share $ 0.17 $ 0.09 $ 0.32 $ 0.16
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted earnings per share $ 0.17 $ 0.09 $ 0.32 $ 0.16
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
WESTERN STAFF SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
24 WEEKS ENDED
-------------------------------------
APRIL 18, APRIL 19,
1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 4,936 $ 2,480
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation 2,368 2,002
Amortization of intangible assets 805 582
Provision for losses on doubtful accounts 465 610
Other non-cash charges 153
Deferred income taxes (2,379) (1,808)
Changes in assets and liabilities:
Trade accounts receivable 4,168 4,628
Due from licensees (851) (1,241)
Other assets (861) (79)
Accounts payable and accrued expenses (1,732) (1,638)
Income taxes payable (3,939) (1,537)
Other long-term liabilities 50 70
Net cash from operating activities 3,183 4,069
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for purchases of fixed assets (1,986) (2,990)
Payments for intangibles and other investments (5,562) (1,798)
Other, net (385) (1)
----------- -----------
Net cash from investing activities (7,933) (4,789)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under line of credit
agreements 1,200 6,400
Principal payments on loans payable (1,239) (2,037)
Proceeds from issuance of loans payable 2,900 1,400
Issuance of common stock under stock option/purchase plans 1,247 87
Repurchase of common stock (343) (966)
Distributions to stockholders (2,500)
Net cash from financing activities 3,765 2,384
----------- -----------
Effect of exchange rate on cash (56) (69)
----------- -----------
Net change in cash and cash equivalents (1,041) 1,595
Cash and cash equivalents at beginning of period 4,796 2,849
----------- -----------
Cash and cash equivalents at end of period $ 3,755 $ 4,444
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
WESTERN STAFF SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Western
Staff Services, Inc. and its domestic and foreign subsidiaries (together,
the Company), as of and for the 12 and 24 week periods ended April 18, 1998
and April 19, 1997 are unaudited. Material intercompany accounts and
transactions have been eliminated.
The condensed consolidated financial statements, in the opinion of
management, reflect all adjustments, which are of a normal recurring
nature, necessary for a fair presentation of the financial position,
results of operations and cash flows for the periods presented.
Certain financial information which is normally included in financial
statements prepared in accordance with generally accepted accounting
principles, but which is not required for interim reporting purposes, has
been condensed or omitted. The accompanying condensed consolidated
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K for the fiscal year ended November 1, 1997.
The Company's fiscal year is a fifty-two or fifty-three week period ending
the Saturday nearest the end of October. For interim reporting purposes,
the first three fiscal quarters comprise twelve weeks each while the fourth
fiscal quarter consists of sixteen or seventeen weeks. The results of
operations for the 12 and 24 week periods ended April 18, 1998 are not
necessarily indicative of the results to be expected for the full fiscal
year or for any future period.
Certain amounts in the April 19, 1997 financial statements have been
reclassified to conform to the presentation adopted for April 18, 1998.
2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
6
<PAGE>
WESTERN STAFF SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
12 WEEKS ENDED 24 WEEKS ENDED
------------------------ ------------------------
APRIL 18, APRIL 19, APRIL 18, APRIL 19,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income $ 2,700 $ 1,342 $ 4,936 $ 2,480
--------- --------- --------- ---------
Denominator for basic earnings per share -
weighted average shares 15,478 15,423 15,433 15,466
Effect of dilutive securities:
Stock options 225 0 176 1
--------- --------- --------- ---------
Denominator for diluted earnings per share - adjusted
weighted average shares and assumed conversions 15,703 15,423 15,609 15,467
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic earnings per share $ 0.17 $ 0.09 $ 0.32 $ 0.16
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted earnings per share $ 0.17 $ 0.09 $ 0.32 $ 0.16
--------- --------- --------- ---------
--------- --------- --------- ---------
Anti-dilutive weighted shares excluded from diluted
earnings per share 2 635 1 616
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
On May 7, 1998, the Board of Directors declared a three-for-two common
stock split effected in the form of a stock dividend payable on May 29,
1998 to shareholders of record at the close of business on May 18, 1998.
All share and per share data in the condensed consolidated financial
statements have been retroactively adjusted for the stock split.
Anti-dilutive weighted shares represent options to purchase shares of
common stock which were outstanding but were not included in the
computation of diluted earnings per share because the options' exercise
price was greater than the average market price of the common shares during
the period, and therefore the effect would be antidilutive.
3. FINANCING ARRANGEMENTS
The Company's senior secured credit facilities totaling $108.0 million
consist of a $90.0 million, five-year revolving agreement and an $18.0
million six-year term loan to provide working capital needs and for general
corporate purposes, including capital expenditures and acquisitions.
Direct advances under the revolving agreement are limited by outstanding
irrevocable standby letters of credit up to a maximum amount of $20.0
million. As of April 18, 1998, the Company had $10.0 million in
outstanding letters of credit and had borrowed $20.9 million under the
revolving agreement. The borrowings under the revolving agreement have
been classified as long-term debt in the April 18, 1998 Condensed
Consolidated Balance Sheet due to the Company's intent and ability to
refinance these borrowings on a long-term basis.
7
<PAGE>
WESTERN STAFF SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
On May 20, 1998, the Company executed private placements of 10-year senior
secured notes totaling $30.0 million payable in equal annual installments
beginning in the year 2002. Proceeds from the notes were used to repay
outstanding borrowings under the revolving agreement of $22.6 million, with
the remainder to be used for working capital and general corporate
purposes.
4. COMMITMENTS AND CONTINGENCIES
The Company is subject to claims and other actions arising in the ordinary
course of business. Some of these claims and actions have resulted in
lawsuits in which the Company is a defendant. Management believes that the
ultimate obligations, if any, which may result from unfavorable outcomes of
such lawsuits will not have a material adverse effect on the business,
financial position, results of operations or cash flows of the Company and
that such obligations, if any, would be adequately covered by insurance.
5. SUBSEQUENT EVENTS
On May 7, 1998, the Board of Directors declared a three-for-two common
stock split effected in the form of a stock dividend payable on May 29,
1998 to shareholders of record at the close of business on May 18, 1998.
On June 2, 1998, the Company filed a Form S-4 shelf registration statement
with the Securities and Exchange Commission to register 1,500,000
(post-split) shares of its $.01 par value Common Stock which may be
offered in the future in connection with the Company's ongoing acquisition
program. As of June 2, 1998, the Company has not entered into any
definitive agreements with respect to any acquisition involving the
issuance of common stock.
8
<PAGE>
WESTERN STAFF SERVICES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The following discussion is intended to assist in the understanding and
assessment of significant changes and trends related to the results of
operations and financial condition of Western Staff Services, Inc., together
with its consolidated subsidiaries. This discussion and analysis should be read
in conjunction with the Company's Condensed Consolidated Financial Statements
and Notes thereto included herein and with the Consolidated Financial Statements
and Notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended November 1, 1997.
In addition to historical information, management's discussion and analysis
includes certain forward-looking statements regarding events and financial
trends which may affect the Company's future operating results and financial
position. These forward-looking statements include, but are not limited to,
statements regarding gross margins, workers' compensation costs, selling and
administrative expenses, interest expense, income taxes, capital expenditures,
capital resources, management information systems, Year 2000 issues and medical
operations. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
The forward-looking statements included herein are also subject to a number of
other risks and uncertainties that could cause the Company's actual results and
financial position to differ materially from those anticipated in the
forward-looking statements. Such risks and uncertainties include, but are not
limited to: demand for the Company's services, the competition within its
markets, the loss of a principal customer and the Company's ability to increase
the productivity of its existing offices, to control costs, to expand operations
and the availability of sufficient personnel. Due to the foregoing factors, it
is possible that in some future period the Company's results of operations may
be below the expectations of public market analysts and investors. In
addition, the Company's results of operations have historically been subject to
quarterly and seasonal fluctuations, with demand for temporary staffing
historically highest in the fourth fiscal quarter, due largely to the planning
cycles of many of the Company's customers, and typically lower in the first
fiscal quarter, due, in part, to national holidays as well as to plant shutdowns
during and after the holiday season. These and other risks and uncertainties
related to the Company's business are described in detail in the "Business"
section of the Company's Annual Report on Form 10-K for the fiscal year ended
November 1, 1997.
OVERVIEW
The Company provides traditional temporary staffing services to businesses,
government agencies and health care organizations in regional and local markets
in the United States and selected international markets. The Company was
founded in 1948 with an office in San Francisco, gradually expanding to over 400
offices in the United States, the United Kingdom, Australia, New Zealand,
Denmark and Norway. Beginning in the late 1950s, the Company began its
franchise agent program and in fiscal 1993 introduced its licensing program.
9
<PAGE>
WESTERN STAFF SERVICES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The general level of economic activity significantly affects the demand for
temporary personnel. As economic activity has slowed, the use of temporary
employees often has been curtailed before permanent employees have been
released. In addition, an economic downturn may adversely affect the demand for
temporary personnel and may have a material adverse effect on the Company's
business, results of operations, cash flows and financial condition. As
economic activity has increased, temporary employees often have been added to
the work force before permanent employees have been hired. During these periods
of increased economic activity and generally higher levels of employment, the
competition among temporary staffing firms for qualified temporary personnel is
intense. Further, the Company may face increased competitive pricing pressures
during such periods. There can be no assurance that during these periods the
Company will be able to recruit the temporary personnel necessary to fill its
customers' job orders or that such pricing pressures will not adversely affect
the Company's business, results of operations, cash flows and financial
condition.
RESULTS OF OPERATIONS
FISCAL QUARTER ENDED APRIL 18, 1998 COMPARED TO FISCAL QUARTER ENDED APRIL 19,
1997
SALES OF SERVICES AND LICENSE FEES. Sales of services increased $19.5 million
or 16.0% for the fiscal quarter ended April 18, 1998 as compared to the fiscal
quarter ended April 19, 1997. The increase resulted from a 9.4% increase in
billed hours and a 5.0% increase in average billing rates per hour. Billed
hours increased primarily due to increased demand in the Company's existing
offices, acquisitions and new office openings. Same store sales (excluding the
effect of foreign currency rate fluctuations) increased approximately 11.0% for
the second quarter of fiscal 1998 as compared to the second quarter of fiscal
1997. Acquisitions accounted for approximately $7.7 million of the increase in
sales for the second quarter of fiscal 1998 as compared to the second quarter of
fiscal 1997. Sales of services for the second quarter of fiscal 1998 increased
14.6%, 2.8% and 53.5%, respectively, for the Company's domestic business
services, international business services and medical services, as compared to
the second quarter of fiscal 1997. Excluding the effect of foreign currency
rate fluctuations, sales of services increased 12.7% for international business
services. The increase in average billing rates reflects inflationary factors,
the ongoing effects of the Company's gross profit improvement program and
changes in the Company's overall business mix.
License fees are charged to licensed offices based either on a percentage of
sales or of gross profit generated by the licensed offices. License fees
increased $57,000 or 11.9% for the fiscal quarter ended April 18, 1998 as
compared to the fiscal quarter ended April 19, 1997. During the period from
April 20, 1997 to April 18, 1998, six franchise agents converted to the
license program and two licensees purchased the Company's interest in their
licenses and became independent such that they are no longer affiliated with the
Company.
COSTS OF SERVICES. Costs of services include hourly wages of temporary
employees, employer payroll taxes, state unemployment and workers' compensation
insurance and other employee-
10
<PAGE>
WESTERN STAFF SERVICES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
related costs. Costs of services increased $13.3 million or 13.7% for the
fiscal quarter ended April 18, 1998 as compared to the fiscal quarter ended
April 19, 1997. Gross margin increased from 21.0% in the second quarter of
fiscal 1997 to 22.5% in the second quarter of fiscal 1998, primarily due to the
Company's gross profit improvement program implemented during the first quarter
of fiscal 1997, higher relative sales for medical services (which typically
generate higher gross margins), and lower unemployment insurance costs as a
percentage of sales of services and license fees. During the first quarter of
fiscal 1997 the Company began implementing a nationwide program directed toward
maximizing gross margins by increasing prices on a national basis to select
customers and targeting higher margin business. As a result of this program,
the Company generated progressively higher gross margins throughout fiscal 1997
increasing gross margins from 20.4% in the first quarter of fiscal 1997 to
21.0%, 21.3%, and 22.1%, respectively, for the second, third and fourth quarters
of fiscal 1997. Gross margins dropped slightly to 22.0% for the first quarter
of fiscal 1998 as compared to the fourth quarter of fiscal 1997 due to increased
holiday pay and seasonal factors, however, margins once again increased to 22.5%
during the second quarter of fiscal 1998. The Company will continue with its
efforts to improve gross margins where feasible; however, there can be no
assurance that the Company will be successful in either increasing gross margins
or eliminating any decreases in gross margins.
Workers' compensation costs were 3.5% of payroll for the fiscal quarter ended
April 18, 1998 and 3.6% for the fiscal quarter ended April 19, 1997. The
Company currently estimates that the overall costs for workers' compensation as
a percentage of direct labor will be generally consistent for fiscal 1998 as
compared to fiscal 1997. The costs may vary depending upon the mix of business
between clerical, light industrial and medical. However, there can be no
assurance that the Company's programs to control workers' compensation expenses
will be effective or that loss development trends will not require a charge to
costs of services in future periods to increase workers' compensation accruals.
FRANCHISE AGENTS' SHARE OF GROSS PROFIT. Franchise agents' share of gross
profit represents the net distribution paid to franchise agents based either on
a percentage of sales or of the gross profit generated by the franchise agents'
operation. Franchise agents' share of gross profit increased $121,000 or 2.7%
for the fiscal quarter ended April 18, 1998 as compared to the fiscal quarter
ended April 19, 1997. As a percentage of sales of services and license fees,
franchise agents' share of gross profit declined from 3.7% during the second
quarter of fiscal 1997 to 3.2% for the second quarter of fiscal 1998. This
decrease is primarily the result of a decrease in the proportion of sales and
gross profits for franchise offices as compared to Company-owned offices.
SELLING AND ADMINISTRATIVE EXPENSES (INCLUDING DEPRECIATION AND AMORTIZATION).
Selling and administrative expenses increased $3.6 million or 19.1% for the
second quarter of fiscal 1998 as compared to the same period for fiscal 1997.
As a percentage of sales of services and license fees, selling and
administrative expenses increased from 15.3% for the fiscal 1997 quarter to
15.7% for the fiscal 1998 quarter. The increase in selling and administrative
expenses as a
11
<PAGE>
WESTERN STAFF SERVICES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
percentage of sales of services and license fees is primarily due to higher
incentive compensation costs, a higher proportion of business generated through
Company-owned offices as compared to franchise offices, and higher amortization
costs resulting from increased acquisition activity. The Company's incentive
compensation plans are directed towards increasing gross profits and operating
income. These incentive costs increased during the second quarter of fiscal
1998 as a direct result of the significant increases in both gross profit and
operating income for the second quarter of fiscal 1998 as compared to the second
quarter of fiscal 1997. The relative volume of franchise business also affects
the overall selling and administrative costs. As the proportion of franchise
sales and gross profits declines relative to total sales, franchise agents'
share of gross profit declines as a percentage of sales of services and license
fees, and selling and administrative costs tend to increase as a percentage of
sales of services and license fees.
Selling and administrative expenses are also affected by the Company's
management information systems. Starting in fiscal 1995, the Company began
conversion of all domestic business services offices to a new comprehensive
payroll and billing system. This conversion was completed during the first
quarter of fiscal 1998. The Company is currently in the process of completing
the development of an integrated search and retrieval function within the
payroll and billing system and expects to begin roll-out of this feature
starting in the fourth quarter of fiscal 1998. The Company is also in the
process of evaluating and implementing available hardware and programming
options to increase the capacity of the current system to meet projected volume
increases. The Company anticipates changing certain of its back office
financial accounting and reporting systems during fiscal 1999 to enhance
processing, inquiry and reporting functions. Furthermore, during the second
quarter of fiscal 1998, the Company began implementation of a wide area network
(WAN) to improve communication and data flow amongst the field offices and
corporate headquarters. The Company expects to have a pilot project relating to
the WAN completed during the fourth quarter of fiscal 1998. In addition to the
business services systems, the Company completed the conversion of its medical
services offices to a comprehensive clinical and financial accounting and
reporting package during the first quarter of fiscal 1998. The Company is
currently working on additional enhancements to the medical system to improve
efficiency and performance of the system. There can be no assurance that the
Company will meet its anticipated completion dates for planned system
enhancements relating to its WAN, search and retrieval systems, financial and
accounting reporting systems or its medical system, or that such enhancements
will support the Company's actual future growth or provide significant gains in
efficiency. The failure of the enhancements to meet these expected goals could
result in increased system costs and could have a material adverse effect on the
Company's business, results of operations, cash flows and financial condition.
INTEREST EXPENSE. Interest expense increased $328,000 or 98.5% for the fiscal
quarter ended April 18, 1998 as compared to the fiscal quarter ended April 19,
1997, reflecting higher average borrowings outstanding during the fiscal 1998
quarter required to support the Company's internal growth and acquisitions. As
a result of increased borrowings required to support the Company's growth,
acquisitions and working capital needs, the Company anticipates higher interest
expense for the remainder of fiscal 1998 as compared to fiscal 1997.
12
<PAGE>
WESTERN STAFF SERVICES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES. The provision for income taxes for the second
quarter of fiscal 1998 was $1.8 million as compared to $895,000 for the second
quarter of fiscal 1997. This increase was due primarily to the increase in
income before income taxes of $2.2 million. The effective income tax rate was
40.0% for each of the fiscal quarters ended April 18, 1998 and April 19, 1997.
The Company currently estimates that the effective income tax rate for fiscal
1998 will be approximately 40.0%.
24 WEEK PERIOD ENDED APRIL 18, 1998 COMPARED TO 24 WEEK PERIOD ENDED APRIL 19,
1997
SALES OF SERVICES AND LICENSE FEES. Sales of services increased $41.6 million
or 17.3% for the 24 weeks ended April 18, 1998 as compared to the 24 weeks ended
April 19, 1997. The increase resulted from a 12.2% increase in billed hours and
a 3.0% increase in average billing rates per hour. Billed hours increased
primarily due to increased demand in the Company's existing offices,
acquisitions and new office openings. Same store sales (excluding the effect of
foreign currency rate fluctuations) increased approximately 12.3% for the 24
week period ended April 18, 1998 as compared to the 24 week period ended April
19, 1997. Acquisitions accounted for approximately $15.4 million of the
increase in sales for the 24 weeks ended April 18, 1998 as compared to the 24
weeks ended April 19, 1997. Sales of services for the 24 week period ended
April 18, 1998 increased 15.9%, 6.7% and 48.3%, respectively, for the Company's
domestic business services, international business services and medical
services, as compared to the 24 week period ended April 19, 1997. Excluding the
effect of foreign currency rate fluctuations, sales of services increased 17.9%
for international business services.
License fees increased $191,000 or 23.9% for the 24 weeks ended April 18, 1998
as compared to the 24 weeks ended April 19, 1997.
COSTS OF SERVICES. Costs of services increased $28.6 million or 14.9% for the 24
weeks ended April 18, 1998 as compared to the 24 weeks ended April 19, 1998.
Gross margin increased from 20.7% in the fiscal 1997 period to 22.3% for the
same period of fiscal 1998 due to the same factors as noted above for the second
quarter of fiscal 1998.
FRANCHISE AGENTS' SHARE OF GROSS PROFIT. Franchise agents' share of gross profit
increased $679,000 or 7.6% for the 24 week period ended April 18, 1998 as
compared to the 24 week period ended April 19, 1997. As a percentage of sales
of services and license fees, franchise agents' share of gross profit declined
from 3.7% during the 24 week period ended April 19, 1997 to 3.4% for the 24 week
period ended April 18, 1998. This decrease is primarily the result of a
decrease in the proportion of sales and gross profits for franchise offices as
compared to Company-owned offices.
SELLING AND ADMINISTRATIVE EXPENSES (INCLUDING DEPRECIATION AND AMORTIZATION).
Selling and administrative expenses increased $7.6 million or 20.8% for the 24
weeks ended April 18, 1998 as compared to the same period for fiscal 1997. As a
percentage of sales of services and license
13
<PAGE>
WESTERN STAFF SERVICES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
fees, selling and administrative expenses increased from 15.1% for the fiscal
1997 period to 15.5% for the fiscal 1998 period due to the same factors as noted
above for the second quarter of fiscal 1998.
INTEREST EXPENSE. Interest expense increased $724,000 or 118.5% for the 24
weeks ended April 18, 1998 as compared to the 24 weeks ended April 19, 1997,
reflecting higher average borrowings outstanding during the fiscal 1998 period.
PROVISION FOR INCOME TAXES. The provision for income taxes for the second
quarter of fiscal 1998 was $3.3 million as compared to $1.7 million for the
second quarter of fiscal 1997. This increase was due primarily to the increase
in income before income taxes of $4.1 million. The effective income tax rate for
each of the 24 week periods of 1998 and 1997 was 40.0%.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its operations through cash generated by
operating activities and through various forms of external financing, including
term loans, mortgage financing and bank lines of credit. The principal use of
cash is for financing of accounts receivable, particularly during periods of
growth. Temporary personnel are generally paid on a weekly basis while payments
from customers are generally received 30 to 60 days after billing (or longer for
medical). As a result of seasonal fluctuations, accounts receivable balances
are historically higher in the fourth fiscal quarter and are generally at their
lowest during the first fiscal quarter. Short-term borrowings used to finance
accounts receivable follow a similar seasonal pattern.
Net cash flows from operating activities were $3.2 million and $4.1 million for
the 24 week periods ended April 18, 1998 and April 19, 1997, respectively. The
decrease in cash flows from operating activities is primarily due to higher
income tax payments during the fiscal 1998 period. The Company is continuing to
focus efforts on collection of accounts receivable to reduce the overall days
outstanding, particularly for Medicare reimbursements. The Company has
implemented a number of procedures and incentive programs for both corporate and
field staff designed to reduce the average number of days outstanding. However,
there can be no assurance that these programs will be effective in improving the
cash flow related to Company receivables.
Cash used for capital expenditures, which are generally for software, computers
and peripherals, and office furniture and equipment, totaled $2.0 million for
the 24 weeks ended April 18, 1998 and $3.0 million for the 24 weeks ended April
19, 1997. During the first quarter of fiscal 1998, the Company completed the
conversion of its domestic business services processing sites to the payroll and
billing portion of the Company's new management information system. While the
payroll and billing portion of the new system is in place, the Company expects
to make further enhancements to the system to increase the volume processing
capacity of the current system, to provide integrated search and retrieval
capabilities, to implement additional modules to streamline the processing
functions and to expand its hardware capabilities. Further, the
14
<PAGE>
WESTERN STAFF SERVICES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Company anticipates changing certain of its back office financial accounting and
reporting systems during fiscal 1999 to enhance processing, inquiry and
reporting functions. Furthermore, during the second quarter of fiscal 1998, the
Company began implementation of a WAN to improve communication and data flow
amongst the field offices and corporate headquarters. The Company expects to
have a pilot project relating to the WAN completed during the fourth quarter of
fiscal 1998. In addition to the business services systems, the Company
completed the conversion of its medical services offices to a comprehensive
clinical and financial accounting and reporting package during the first quarter
of fiscal 1998. The Company is currently working on additional enhancements to
the medical system to improve efficiency and performance of the system. The
Company has no other significant commitments for capital purchases.
During the 24 week periods ended April 18, 1998 and April 19, 1997, cash
outflows for new acquisitions and for contingent payments under existing
acquisitions totaled $5.6 million and $1.8 million, respectively. Payments of
$2.1 million and $1.5 million related to acquisitions are due for fiscal 1998
and fiscal 1999, respectively, with additional consideration contingent on
sales, gross profits or pre-tax income of the acquired businesses in future
periods.
During the 24 week periods ended April 18, 1998 and April 19, 1997, the Company
increased total borrowings by a net $2.9 million and $5.8 million, respectively.
Distributions to stockholders totaled $2.5 million in the fiscal 1997 period
representing the remaining undistributed S corporation earnings of the Company.
The Company does not anticipate declaring or paying any cash dividends on its
common stock in the foreseeable future.
During the 24 week period ended April 18, 1998, the Company repurchased 20,000
shares of common stock on the open market for aggregate cash consideration of
$342,500. As of April 18, 1998, 94,002 shares were reissued and 2,145 new shares
were issued under the employee stock option and purchase plans with aggregate
cash proceeds of $1.2 million.
The Company's senior secured credit facilities totaling $108.0 million
consist of a $90.0 million, five-year revolving agreement and an $18.0
million six-year term loan to provide working capital needs and for general
corporate purposes, including capital expenditures and acquisitions. Direct
advances under the revolving agreement are limited by outstanding irrevocable
standby letters of credit up to a maximum amount of $20.0 million. As of
April 18, 1998, the Company had $10.0 million in outstanding letters of
credit and had borrowed $20.9 million under the revolving agreement. The
borrowings under the revolving agreement have been classified as long-term
debt in the April 18, 1998 Condensed Consolidated Balance Sheet due to the
Company's intent and ability to refinance these borrowings on a long-term
basis.
On May 20, 1998, the Company executed private placements of 10-year senior
secured notes totaling $30.0 million payable in equal annual installments
beginning in the year 2002. Proceeds from the notes were used to repay
outstanding borrowings under the revolving agreement of $22.6 million, with the
remainder to be used for working capital and general corporate purposes.
15
<PAGE>
WESTERN STAFF SERVICES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The Company believes that cash from operations and the Company's current
borrowing capacity will be sufficient to meet anticipated needs for working
capital and capital expenditures at least through the next twelve months.
MEDICAL OPERATIONS
As a provider of home care services, Western Medical Services, Inc. is subject
to changing federal and state regulations relating to the licensing and
certification of its offices and the sale and delivery of its services. Changes
in the law and regulations as well as new interpretations enforced by the
relevant regulatory agencies could have a material adverse effect on the
Company's business, results of operations, cash flows and financial condition.
On August 5, 1997, President Clinton signed into law the Balanced Budget Act of
1997 (Budget Act), resulting in significant changes to cost based reimbursement
for Medicare services provided by home health care providers. Cost limits were
reduced for fiscal years beginning on or after October 1, 1997. Home health
agencies will be reimbursed the lowest of: (1) actual costs of operating the
agency's Medicare services; (2) a reduced aggregate cost per visit rate; or (3)
an aggregate per beneficiary limit.
The Budget Act requires the Health Care Financing Administration of the U.S.
Department of Health and Human Services (HCFA) to implement a Prospective
Payment System (PPS) for fiscal years beginning on or after October 1, 1999 to
replace this cost-based system. The PPS will pay home health agencies a fixed
amount for services rendered without regard to their costs. There can be no
assurance that such reimbursement rates will cover the costs incurred by the
Company to provide Medicare home health care services.
The impact of these changes on the Company will be to reduce the amount of
costs that will be reimbursable, pursuant to the Medicare program, effective
November 2, 1997. However, as the Company has not yet received its specific
provider based per-beneficiary limits from HCFA, it is not possible to quantify
the actual amount of the impact of the new reimbursement rates on the Company's
results of operations. To address the potential impact of these reimbursement
reductions, the Company is assessing the effectiveness of its patient care
services and is developing strategies to increase efficiency in providing care
to patients. In addition, the Company is reviewing its expenditures for
operating costs and general and administrative expenses in an effort to ensure
that its costs will be within the amounts that may be reimbursable under the
new regulations. The Company currently estimates that the potential effect of
the new regulations will not be material to the Company's results of operations
for fiscal 1998. However, because the Company cannot presently determine the
actual number of patients that will be serviced, the severity of their illnesses
or the extent of its ability to reduce general or administrative expenses, and
as the Company has not yet been furnished with its specific provider based
per-beneficiary limits, there can be no assurance that the ultimate adjustments
to revenue as a result of the new regulations will not have a material adverse
effect on the business, financial condition, cash flows or results of operations
of the Company.
16
<PAGE>
WESTERN STAFF SERVICES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR 2000
The Company is in the process of evaluating the impact of the Year 2000 issue
and expects to complete such evaluation during fiscal 1998. The Year 2000 issue
is the result of computer programs being written using two digits rather than
four to define the applicable year. Any programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a major system failure or miscalculations. The
Company presently believes that, with minor modifications to existing software
and planned software upgrades and replacements, the Year 2000 issue will not
pose significant operational concerns nor have a material adverse effect on the
Company's business, financial condition, cash flows or results of operations in
any given year. Although the Company does not currently expect that the impact
of this computer program flaw will be material, there can be no assurance that
the Company will not discover Year 2000 issues with respect to the Company's
computer systems in the course of its evaluation process that would have a
material adverse effect on the business, financial condition, cash flows or
results of operations of the Company. In addition, the Year 2000 issue may
impact other entities with which the Company transacts business, and there can
be no assurance that such impact will not have a material adverse effect on the
business, financial condition, cash flows or results of operations of the
Company.
17
<PAGE>
PART II. OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 1. LEGAL PROCEEDINGS
The Company is not currently a party to any litigation that
could have a material adverse effect on its business, results of
operations, financial position or cash flows. However, from time
to time the Company has been threatened with, or named as a
defendant in, lawsuits, including countersuits brought by former
franchise agents, and administrative claims and lawsuits brought by
employees or former employees.
Item 2. CHANGES IN SECURITIES
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) At the Annual Meeting of Stockholders on March 26, 1998, the
following were elected as Class II directors to serve three-year terms
and until their successors are elected:
<TABLE>
<CAPTION>
Votes
------------
For Withheld
----------- -------------
<S> <C> <C>
Michael K. Phippen.......... 9,323,242 31,358
Paul A. Norberg............. 9,295,762 31,358
</TABLE>
(b) At the Annual Meeting of Stockholders the following additional
matters were voted upon:
1. A proposal to ratify the selection of Price Waterhouse
LLP as independent accountants for the Company for the
fiscal year 1998 ending October 31, 1998.
Affirmative votes: 9,323,242
Negative votes: 3,199
Abstentions: 679
Non-votes: 0
2. A proposal to amend (i) Articles Two and Three of the
Company's 1996 Stock Option/Stock Issuance Plan (the
"Plan") to provide for greater transferability of
Non-Statutory Options, and (ii) Article Three of the
Plan to provide for an increase in the annual automatic
option grant to each Eligible Director on the date of
each Annual Meeting
18
<PAGE>
PART II. OTHER INFORMATION
- --------------------------------------------------------------------------------
(beginning with the 1998 Annual Meeting) from 1,000
shares to 2,000 shares of Common Stock, subject to the
restrictions of the Plan.
Affirmative votes: 9,126,677
Negative votes: 123,053
Abstentions: 77,190
Non-votes: 0
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
10.8.8 First Amendment to Credit Agreement dated as of May 15, 1998
10.8.9 Note Purchase Agreement dated May 15, 1998
27.1 Financial Data Schedule
- --------------------
(b) Reports on Form 8-K
No reports on Form 8-K were filed in or for the 24 week period
ended April 18, 1998.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WESTERN STAFF SERVICES, INC.
June 2, 1998 /Paul A. Norberg/
------------ --------------------------------------
Date Paul A. Norberg
Executive Vice President, Chief Financial
Officer and Director
20
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (the "AMENDMENT"), dated as
of May 15, 1998, is entered into by and among WESTERN STAFF SERVICES (USA), INC.
("WSS"), WESTERN MEDICAL SERVICES, INC. ("WMS" and together with WSS,
collectively, the "BORROWERS" and individually, a "BORROWER"), BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION, as agent for itself and the Banks (the
"AGENT"), and the several financial institutions party to the Credit Agreement
(collectively, the "BANKS").
RECITALS
A. The Borrowers, Banks, and Agent are parties to a Credit Agreement
dated as of March 4, 1998 (the "CREDIT AGREEMENT") pursuant to which the Agent
and the Banks have extended certain credit facilities to the Borrowers.
B. The Borrowers have requested that the Banks consent to the terms
of a certain Note Purchase Agreement dated on or about May 15, 1998 among the
Borrowers, Nationwide Life Insurance Company, and Jackson National Life
Insurance Company.
C. The Banks are willing to grant the request of the Borrowers,
provided the Credit Agreement is amended as set forth in this Amendment.
AGREEMENT
NOW, THEREFORE, for valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. DEFINED TERMS. Unless otherwise defined herein, capitalized terms
used herein shall have the meanings, if any, assigned to them in the Credit
Agreement.
2. AMENDMENTS TO CREDIT AGREEMENT.
(a) The following new defined terms are added to Section
1.01 of the Credit Agreement:
"NOTE PURCHASE AGREEMENT" means that certain Note Purchase
Agreement among the Borrowers and Note Purchasers dated on or
about May 15, 1998, pursuant to which Borrowers have agreed to
issue and Note Purchasers have agreed to acquire 6.77% Senior
Secured Notes due May 15, 2008, in the aggregate principal amount
of Thirty Million Dollars ($30,000,000).
"NOTE PURCHASERS" means Nationwide Life Insurance Company,
Jackson National Life Insurance Company, and their respective
successors and assigns.
(b) Section 7.13 of the Credit Agreement is amended by the
addition of the following subsection (e) thereto:
(e) Cause any Subsidiary which is not a Loan Party and
which executes a guaranty and security agreement in favor of the
Note Purchasers in support of the Borrowers' obligations under
the Note Purchase Agreement to concurrently become a Loan Party
as provided in subsections (a) and (b) above.
(c) A new Section 8.15 is added to the Credit Agreement to
read as follows:
-1-
<PAGE>
8.15 LIMITATION ON TOTAL INDEBTEDNESS. The Borrowers shall
not permit the ratio of Total Indebtedness to Total
Capitalization to exceed 55%. For purposes of this Section 8.15
only, the following terms have the meanings indicated:
"TOTAL INDEBTEDNESS" means, without duplication, the sum of
the following Indebtedness of the Parent and its consolidated
Subsidiaries: (i) liabilities for borrowed money (including
Revolving Loans from time to time created hereunder) and
redemption obligations in respect of mandatorily redeemably
preferred stock; (ii) liabilities for the deferred purchase price
of property (excluding accounts payable arising in the Ordinary
Course of Business but including all liabilities created or
arising under any conditional sale or other title retention
agreement with respect to any such property); (iii) Capital
Leases; (iv) all liabilities for borrowed money secured by any
Lien with respect to any property owned by any such Person
(whether or not it has assumed or otherwise become liable for
such liabilities); (v) L/C Borrowings; (vi) Swap Contracts; (vii)
any Guaranty Obligations with respect to liabilities of a type
described in any of the clauses (i) through (vi).
"TOTAL CAPITALIZATION" means the sum of Total Indebtedness
and Consolidated Net Worth.
(d) Subsection 11.01(e) of the Credit Agreement is amended
by adding "8.15," immediately following "8.14,".
3. REPRESENTATIONS AND WARRANTIES. The Borrowers each hereby
represent and warrant to the Agent and the Banks as follows:
(a) No Default or Event of Default has occurred and is
continuing.
(b) The execution, delivery and performance by the
Borrowers of this Amendment have been duly authorized by all necessary
corporate and other action and do not and will not require any registration
with, consent or approval of, notice to or action by, any Person (including
any Governmental Authority) in order to be effective and enforceable. The
Credit Agreement as amended by this Amendment constitutes the legal, valid
and binding obligations of the Borrowers, enforceable against each of them
in accordance with its respective terms, without defense, counterclaim or
offset.
(c) All representations and warranties of the Borrowers
contained in the Credit Agreement are true and correct.
4. EFFECTIVE DATE. This Amendment will become effective as of the
date that the Agent shall have received this Amendment duly executed by the
Borrowers, the Agent, the Issuing Bank and each of the Banks, together with a
duly executed Guarantor Acknowledgment and Consent in the form attached hereto.
5. RESERVATION OF RIGHTS. Each of the Borrowers acknowledges and
agrees that the execution and delivery by the Agent and the Banks of this
Amendment shall not be deemed to create a course of dealing or otherwise
obligate the Agent or the Banks to forbear or execute similar amendments under
the same or similar circumstances in the future.
-2-
<PAGE>
6. MISCELLANEOUS.
(a) Except as herein expressly amended, all terms,
covenants and provisions of the Credit Agreement are and shall remain in
full force and effect and all references therein to such Credit Agreement
shall henceforth refer to the Credit Agreement as amended by this
Amendment. This Amendment shall be deemed incorporated into, and a part
of, the Credit Agreement.
(b) This Amendment shall be binding upon and inure to the
benefit of the parties hereto and thereto and their respective successors
and assigns. No third party beneficiaries are intended in connection with
this Amendment.
(c) This Amendment shall be governed by and construed in
accordance with the law of the State of California.
(d) This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument.
Each of the parties hereto understands and agrees that this document (and
any other document required herein) may be delivered by any party thereto
either in the form of an executed original or an executed original sent by
facsimile transmission to be followed promptly by mailing of a hard copy
original, and that receipt by the Agent of a facsimile transmitted document
purportedly bearing the signature of a Bank or the Borrower or WMS shall
bind such Bank or the Borrower or WMS, respectively, with the same force
and effect as the delivery of a hard copy original. Any failure by the
Agent to receive the hard copy executed original of such document shall not
diminish the binding effect of receipt of the facsimile transmitted
executed original of such document of the party whose hard copy page was
not received by the Agent.
(e) This Amendment, together with the Credit Agreement,
contains the entire and exclusive agreement of the parties hereto with
reference to the matters discussed herein and therein. This Amendment
supersedes all prior drafts and communications with respect thereto. This
Amendment may not be amended except in accordance with the provisions of
Section 11.01 of the Credit Agreement.
(f) If any term or provision of this Amendment shall be
deemed prohibited by or invalid under any applicable law, such provision
shall be invalidated without affecting the remaining provisions of this
Amendment or the Credit Agreement, respectively.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Amendment as of the date first above written.
WESTERN STAFF SERVICES (USA), INC.
By /s/ Paul A. Norberg
---------------------------------
Paul A. Norberg
Executive Vice President and
Chief Financial Officer
By /s/ Michael W. Ehresman
---------------------------------
Michael W. Ehresman
Vice President and Treasurer
-3-
<PAGE>
WESTERN MEDICAL SERVICES, INC.
By /s/ Michael J. Nicholson
---------------------------------
Michael J. Nicholson
President, Chief Operating Officer
and Chief Financial Officer
By /s/ Cynthia L. Sloneker
---------------------------------
Cynthia L. Sloneker
Controller
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent
By /s/ Leandro Balidoy
---------------------------------
Leandro Balidoy
Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as a Bank and as
Issuing Bank
By /s/ Lisa M. Thomas
---------------------------------
Lisa M. Thomas
Vice President
COMERICA BANK-CALIFORNIA, as a Bank
By /s/ Lori S. Edwards
---------------------------------
Lori S. Edwards
First Vice President and
Group Manager
SANWA BANK CALIFORNIA, as a Bank
By /s/ David J. Neagle
---------------------------------
David J. Neagle
Vice President
-4-
<PAGE>
GUARANTOR ACKNOWLEDGMENT
AND CONSENT
The undersigned, each a guarantor or third party pledgor with respect
to the Borrowers' obligations to the Agent and the Banks under the Credit
Agreement, each hereby (i) acknowledges and consents to the execution, delivery
and performance by the Borrowers of the foregoing First Amendment to Credit
Agreement (the "AMENDMENT"), and (ii) reaffirms and agrees that the respective
guaranty, third party pledge or security agreement to which the undersigned is
party and all other documents and agreements executed and delivered by the
undersigned to the Agent and the Banks in connection with the Credit Agreement
are in full force and effect, without defense, offset or counterclaim.
(Capitalized terms used herein have the meanings specified in the Amendment.)
WESTERN STAFF SERVICES, INC.
Dated:_________________ By /s/ Paul A. Norberg
---------------------------------
Paul A. Norberg
Executive Vice President
and Chief Financial Officer
By /s/ Michael W. Ehresman
---------------------------------
Michael W. Ehresman
Vice President and Treasurer
WESTERN MEDICAL SERVICES (NY), INC.
Dated: _________________ By /s/ Michael J. Nicholson
---------------------------------
Michael J. Nicholson
President, Chief Operating Officer,
and Chief Financial Officer
By /s/ Cynthia L. Sloneker
---------------------------------
Cynthia L. Sloneker
Controller
WESTERN TECHNICAL SERVICES, INC.
Dated: _________________ By /s/ Paul A. Norberg
---------------------------------
Paul A. Norberg
Executive Vice President and
Chief Financial Officer
By /s/ Michael W. Ehresman
---------------------------------
Michael W. Ehresman
Vice President and Treasurer
-5-
<PAGE>
MEDIAWORLD INTERNATIONAL
Dated: _________________ By /s/ Paul A. Norberg
---------------------------------
Paul A. Norberg
Executive Vice President and
Chief Financial Officer
By /s/ Michael W. Ehresman
---------------------------------
Michael W. Ehresman
Vice President and Treasurer
WESTERN STAFF SERVICES (GUAM), INC.
Dated: _________________ By /s/ Paul A. Norberg
---------------------------------
Paul A. Norberg
Executive Vice President and
Chief Financial Officer
By /s/ Michael W. Ehresman
---------------------------------
Michael W. Ehresman
Vice President and Treasurer
ALTERNATIVE BILLING SERVICES, INC.
Dated: _________________ By /s/ Michael J. Nicholson
---------------------------------
Michael J. Nicholson
President, Chief Operating Officer,
and Chief Financial Officer
By /s/ Cynthia L. Sloneker
---------------------------------
Cynthia L. Sloneker
Controller
BEST TEMPORARIES, INC.
Dated: _________________ By /s/ Paul A. Norberg
---------------------------------
Paul A. Norberg
Executive Vice President and
Chief Financial Officer
By /s/ Michael W. Ehresman
---------------------------------
Michael W. Ehresman
Vice President and Treasurer
-6-
<PAGE>
BEST TEMPORARIES FEDERAL SYSTEMS, INC.
Dated: _________________ By /s/ Paul A. Norberg
---------------------------------
Paul A. Norberg
Executive Vice President and
Chief Financial Officer
By /s/ Michael W. Ehresman
---------------------------------
Michael W. Ehresman
Vice President and Treasurer
-7-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WESTERN STAFF SERVICES (USA), INC.
WESTERN MEDICAL SERVICES, INC.
$30,000,000
6.77% Senior Secured Notes due May 15, 2008
-----------------
NOTE PURCHASE AGREEMENT
-----------------
Dated May 15, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
(Not a part of the Agreement)
SECTION HEADING PAGE
SECTION 1. AUTHORIZATION OF NOTES; GUARANTIES; SECURITY. . . . . . . . . . 1
Section 1.1. The Notes . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Guaranties. . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.3. Security for the Notes and Guaranties . . . . . . . . . . 1
Section 1.4. Intercreditor Agreement . . . . . . . . . . . . . . . . . 2
SECTION 2. SALE AND PURCHASE OF NOTES. . . . . . . . . . . . . . . . . . . 2
SECTION 3. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 4. CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . 2
Section 4.1. Representations and Warranties. . . . . . . . . . . . . . 3
Section 4.2. Performance; No Default . . . . . . . . . . . . . . . . . 3
Section 4.3. Compliance Certificates . . . . . . . . . . . . . . . . . 3
Section 4.4. Opinions of Counsel . . . . . . . . . . . . . . . . . . . 3
Section 4.5. Transaction Documents . . . . . . . . . . . . . . . . . . 3
Section 4.6. Purchase Permitted By Applicable Law, etc.. . . . . . . . 3
Section 4.7. Sale of Other Notes . . . . . . . . . . . . . . . . . . . 4
Section 4.8. Payment of Special Counsel Fees . . . . . . . . . . . . . 4
Section 4.9. Private Placement Number. . . . . . . . . . . . . . . . . 4
Section 4.10. Changes in Corporate Structure. . . . . . . . . . . . . . 4
Section 4.11. Proceedings and Documents . . . . . . . . . . . . . . . . 4
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE CO-ISSUERS. . . . . . . . 4
Section 5.1. Organization; Power and Authority . . . . . . . . . . . . 4
Section 5.2. Authorization, etc. . . . . . . . . . . . . . . . . . . . 4
Section 5.3. Disclosure. . . . . . . . . . . . . . . . . . . . . . . . 5
Section 5.4. Organization and Ownership of Shares
of Subsidiaries; Affiliates. . . . . . . . . . . . . . . 5
Section 5.5. Financial Statements. . . . . . . . . . . . . . . . . . . 6
Section 5.6. Compliance with Laws, Other Instruments, etc. . . . . . . 6
Section 5.7. Governmental Authorizations, etc. . . . . . . . . . . . . 6
Section 5.8. Litigation; Observance of Agreements,
Statutes and Orders. . . . . . . . . . . . . . . . . . . 6
Section 5.9. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 5.10. Title to Property; Leases . . . . . . . . . . . . . . . . 7
Section 5.11. Licenses, Permits, etc. . . . . . . . . . . . . . . . . . 7
Section 5.12. Compliance with ERISA . . . . . . . . . . . . . . . . . . 7
Section 5.13. Private Offering by the Company and
the Co-Issuers . . . . . . . . . . . . . . . . . . . . . 8
Section 5.14. Use of Proceeds; Margin Regulations . . . . . . . . . . . 8
Section 5.15. Existing Indebtedness; Future Liens . . . . . . . . . . . 9
Section 5.16. Foreign Assets Control Regulations, etc.. . . . . . . . . 9
Section 5.17. Status under Certain Statutes . . . . . . . . . . . . . . 9
-i-
<PAGE>
Section 5.18. Environmental Matters . . . . . . . . . . . . . . . . . . 9
Section 5.19. Solvency. . . . . . . . . . . . . . . . . . . . . . . . .10
Section 5.20. Matters Relating to the Collateral. . . . . . . . . . . .10
SECTION 6. REPRESENTATIONS OF THE PURCHASER. . . . . . . . . . . . . . . .10
Section 6.1. Purchase for Investment . . . . . . . . . . . . . . . . .10
Section 6.2. Source of Funds . . . . . . . . . . . . . . . . . . . . .11
SECTION 7. INFORMATION AS TO COMPANY . . . . . . . . . . . . . . . . . . .12
Section 7.1. Financial and Business Information. . . . . . . . . . . .12
Section 7.2. Officer's Certificate . . . . . . . . . . . . . . . . . .15
Section 7.3. Inspection. . . . . . . . . . . . . . . . . . . . . . . .15
SECTION 8. PREPAYMENT OF THE NOTES . . . . . . . . . . . . . . . . . . . .16
Section 8.1. Required Prepayments. . . . . . . . . . . . . . . . . . .16
Section 8.2. Optional Prepayments with Make-Whole Amount . . . . . . .16
Section 8.3. Allocation of Partial Prepayments . . . . . . . . . . . .16
Section 8.4. Maturity; Surrender, etc. . . . . . . . . . . . . . . . .16
Section 8.5. Purchase of Notes . . . . . . . . . . . . . . . . . . . .17
Section 8.6. Make-Whole Amount . . . . . . . . . . . . . . . . . . . .17
SECTION 9. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . .18
Section 9.1. Compliance with Law . . . . . . . . . . . . . . . . . . .18
Section 9.2. Insurance . . . . . . . . . . . . . . . . . . . . . . . .18
Section 9.3. Maintenance of Properties . . . . . . . . . . . . . . . .18
Section 9.4. Payment of Taxes and Claims . . . . . . . . . . . . . . .19
Section 9.5. Corporate Existence, etc. . . . . . . . . . . . . . . . .19
Section 9.6. Inactive Subsidiaries; New Subsidiaries . . . . . . . . .19
SECTION 10. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . .20
Section 10.1. Transactions with Affiliates. . . . . . . . . . . . . . .20
Section 10.2. Merger, Consolidation, etc. . . . . . . . . . . . . . . .20
Section 10.3. Liens . . . . . . . . . . . . . . . . . . . . . . . . . .21
Section 10.4. Limitation on Total Indebtedness. . . . . . . . . . . . .22
Section 10.5. Limitation on Subsidiary Indebtedness . . . . . . . . . .22
Section 10.6. Sale of Assets. . . . . . . . . . . . . . . . . . . . . .22
Section 10.7. Minimum Consolidated Net Worth. . . . . . . . . . . . . .23
Section 10.8. Minimum Fixed Charge Coverage . . . . . . . . . . . . . .23
Section 10.9. Line of Business. . . . . . . . . . . . . . . . . . . . .23
Section 10.10. Loans to and Investments in Licensees,
Unrestricted Subsidiaries and Affiliates . . . . . . . .23
Section 10.11. Designation of Restricted and
Unrestricted Subsidiaries. . . . . . . . . . . . . . . .24
SECTION 11. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . .24
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SECTION 12. REMEDIES ON DEFAULT, ETC. . . . . . . . . . . . . . . . . . . .26
Section 12.1. Acceleration. . . . . . . . . . . . . . . . . . . . . . .26
Section 12.2. Other Remedies. . . . . . . . . . . . . . . . . . . . . .27
Section 12.3. Rescission. . . . . . . . . . . . . . . . . . . . . . . .27
Section 12.4. No Waivers or Election of Remedies,
Expenses, etc. . . . . . . . . . . . . . . . . . . . . .27
SECTION 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES . . . . . . . . .28
Section 13.1. Registration of Notes . . . . . . . . . . . . . . . . . .28
Section 13.2. Transfer and Exchange of Notes. . . . . . . . . . . . . .28
Section 13.3. Replacement of Notes. . . . . . . . . . . . . . . . . . .28
SECTION 14. PAYMENTS ON NOTES . . . . . . . . . . . . . . . . . . . . . . .29
Section 14.1. Place of Payment. . . . . . . . . . . . . . . . . . . . .29
Section 14.2. Home Office Payment . . . . . . . . . . . . . . . . . . .29
SECTION 15. EXPENSES, ETC.. . . . . . . . . . . . . . . . . . . . . . . . .29
Section 15.1. Transaction Expenses. . . . . . . . . . . . . . . . . . .29
Section 15.2. Survival. . . . . . . . . . . . . . . . . . . . . . . . .30
SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . .30
SECTION 17. AMENDMENT AND WAIVER. . . . . . . . . . . . . . . . . . . . . .30
Section 17.1. Requirements. . . . . . . . . . . . . . . . . . . . . . .30
Section 17.2. Solicitation of Holders of Notes. . . . . . . . . . . . .30
Section 17.3. Binding Effect, etc.. . . . . . . . . . . . . . . . . . .31
Section 17.4. Notes Held by Co-Issuers, etc.. . . . . . . . . . . . . .31
SECTION 18. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
SECTION 19. REPRODUCTION OF DOCUMENTS . . . . . . . . . . . . . . . . . . .31
SECTION 20. CONFIDENTIAL INFORMATION. . . . . . . . . . . . . . . . . . . .32
SECTION 21. SUBSTITUTION OF PURCHASER . . . . . . . . . . . . . . . . . . .33
SECTION 22. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . .33
Section 22.1. Successors and Assigns. . . . . . . . . . . . . . . . . .33
Section 22.2. Payments Due on Non-Business Days . . . . . . . . . . . .33
Section 22.3. Severability. . . . . . . . . . . . . . . . . . . . . . .33
Section 22.4. Construction. . . . . . . . . . . . . . . . . . . . . . .33
Section 22.5. Counterparts. . . . . . . . . . . . . . . . . . . . . . .33
Section 22.6. Governing Law . . . . . . . . . . . . . . . . . . . . . .33
Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
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<PAGE>
SCHEDULE A INFORMATION RELATING TO PURCHASERS
SCHEDULE B DEFINED TERMS
SCHEDULE 4.10 CHANGES IN CORPORATE STRUCTURE
SCHEDULE 5.3 DISCLOSURE MATERIALS
SCHEDULE 5.4 SUBSIDIARIES OF THE CO-ISSUERS AND OWNERSHIP OF SUBSIDIARY
STOCK
SCHEDULE 5.5 FINANCIAL STATEMENTS
SCHEDULE 5.8 CERTAIN LITIGATION
SCHEDULE 5.11 PATENTS, ETC.
SCHEDULE 5.12 ERISA AFFILIATES, ETC.
SCHEDULE 5.14 USE OF PROCEEDS
SCHEDULE 5.15 EXISTING INDEBTEDNESS
EXHIBIT 1 FORM OF 6.77% SENIOR SECURED NOTE DUE MAY ___, 2008
EXHIBIT 1.2(a) FORM OF COMPANY GUARANTY
EXHIBIT 1.2(b) FORM OF SUBSIDIARY GUARANTY
EXHIBIT 1.3(a) LIST OF SECURITY DOCUMENTS
EXHIBIT 1.3(b) FORM OF SECURITY AGREEMENT
EXHIBIT 1.3(c) FORM OF GUARANTOR SECURITY AGREEMENT
EXHIBIT 1.4 FORM OF INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT
EXHIBIT 4.4(a) FORM OF OPINION OF COUNSEL FOR THE COMPANY
Exhibit 4.4(b) FORM OF OPINION OF SPECIAL COUNSEL FOR THE PURCHASERS
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<PAGE>
WESTERN STAFF SERVICES (USA), INC.
WESTERN MEDICAL SERVICES, INC.
301 LENNON LANE
WALNUT CREEK, CALIFORNIA 94598
6.77% Senior Secured Notes due May 15, 2008
May 15, 1998
TO EACH OF THE PURCHASERS LISTED IN
THE ATTACHED SCHEDULE A:
Ladies and Gentlemen:
Western Staff Services (USA), Inc., a California corporation ("WSS"), and
Western Medical Services, Inc., a California corporation ("WMS") (WSS and WMS
sometimes hereinafter are referred to individually as a "CO-ISSUER" and
collectively as the "CO-ISSUERS"), each agrees with you as follows:
SECTION 1. AUTHORIZATION OF NOTES; GUARANTIES; SECURITY.
SECTION 1.1. THE NOTES. The Co-Issuers have duly authorized the issue
and sale of $30,000,000 aggregate principal amount of their 6.77% Senior Secured
Notes due May 15, 2008 (the "NOTES", such term to include any such notes issued
in substitution therefor pursuant to Section 13 of this Agreement or the Other
Agreements (as hereinafter defined)). Each of the Notes shall bear interest
from the date thereof until such Note shall become due and payable in accordance
with the terms thereof and hereof (whether at maturity, by acceleration or
otherwise) at the rate of 6.77% per annum. Interest on each Note shall be
computed on the basis of a 360 day year of twelve 30 day months.
Notwithstanding the foregoing, the Co-Issuers shall pay interest on any overdue
payment (including any overdue prepayment) of principal, any overdue payment of
interest and any overdue payment of any Make-Whole Amount at the Default Rate in
accordance with the Notes. The Notes shall be substantially in the form set out
in Exhibit 1, with such changes therefrom, if any, as may be approved by you and
the Co-Issuers. Certain capitalized terms used in this Agreement are defined in
Schedule B; references to a "SCHEDULE" or an "EXHIBIT" are, unless otherwise
specified, to a Schedule or an Exhibit attached to this Agreement.
SECTION 1.2. GUARANTIES. The Notes shall be unconditionally guaranteed
by (i) Western Staff Services, Inc., a Delaware corporation (the "COMPANY"),
pursuant to the Guaranty dated as of the date hereof made by the Company in
favor of the holders of the Notes substantially in the form of Exhibit 1.2(a)
hereto (as amended, modified and supplemented from time to time, the "COMPANY
GUARANTY"), and (ii) the other Guarantors pursuant to a Subsidiary Guaranty
dated as of the date hereof made by the Guarantors (other than the Company) in
favor of the holders of the Notes substantially in the form of Exhibit 1.2(b)
hereto (as amended, modified and supplemented from time to time, the "SUBSIDIARY
GUARANTY"); the Company Guaranty and the Subsidiary Guaranty are collectively
referred to as the "GUARANTIES").
SECTION 1.3. SECURITY FOR THE NOTES AND GUARANTIES. The Notes and the
obligations of the Guarantors under the Guaranties shall be secured, equally and
ratably with the obligations of the Co-Issuers and the Guarantors under the
Existing Bank Credit Facility, by the Security Documents described in Exhibit
1.3(a), which in the case of the Security Agreement and the Guarantor Security
Agreement shall be substantially in the respective forms of Exhibits 1.3(b) and
1.3(c).
<PAGE>
SECTION 1.4. INTERCREDITOR AGREEMENT. The collateral described in the
Security Documents shall be held by Bank of America National Trust and Savings
Association, as collateral agent for the benefit of the Credit Facility Banks
and the holders of the Notes (the "COLLATERAL AGENT") pursuant to the
Intercreditor and Collateral Agency Agreement substantially in the form of
Exhibit 1.4 among the holders of the Notes, the Credit Facility Banks and the
Collateral Agent (the "INTERCREDITOR AGREEMENT"), which shall govern (i) the
respective rights of the holders of the Notes and the Credit Facility Banks in
respect of Indebtedness of the Co-Issuers and the Guarantors and (ii) the
respective rights of the holders of the Notes and the Credit Facility Banks in
the collateral described in the Security Documents.
SECTION 2. SALE AND PURCHASE OF NOTES.
Subject to the terms and conditions of this Agreement, the Co-Issuers will
issue and sell to you and you will purchase from the Co-Issuers, at the Closing
provided for in Section 3, Notes in the principal amount specified opposite your
name in Schedule A at the purchase price of 100% of the principal amount
thereof. Contemporaneously with entering into this Agreement, the Co-Issuers
are entering into separate Note Purchase Agreements (the "OTHER AGREEMENTS")
identical with this Agreement with each of the other purchasers named in
Schedule A (the "OTHER PURCHASERS"), providing for the sale at such Closing to
each of the Other Purchasers of Notes in the principal amount specified opposite
its name in Schedule A. Your obligation hereunder, and the obligations of the
Other Purchasers under the Other Agreements, are several and not joint
obligations, and you shall have no obligation under any Other Agreement and no
liability to any Person for the performance or nonperformance by any Other
Purchaser thereunder.
SECTION 3. CLOSING.
The sale and purchase of the Notes to be purchased by you and the Other
Purchasers shall occur at the offices of Altheimer & Gray, 10 South Wacker
Drive, Chicago, Illinois 60606 at 9:00 a.m., Chicago time, at a closing (the
"CLOSING") on May 15, 1998 or on such other Business Day thereafter on or prior
to May 31, 1998 as may be agreed upon by the Co-Issuers and you and the Other
Purchasers. At the Closing the Co-Issuers will deliver to you the Notes to be
purchased by you in the form of a single Note (or such greater number of Notes
in denominations of at least $100,000 as you may request) dated the date of the
Closing and registered in your name (or in the name of your nominee), against
delivery by you to the Co-Issuers or their order of immediately available funds
in the amount of the purchase price therefor by wire transfer of immediately
available funds for the account of the Co-Issuers to account number 1416-350079
at Bank of America National Trust and Savings Association, 300 Lakeside Drive,
Oakland, California 94612, ABA Number 121000358. If at the Closing the
Co-Issuers shall fail to tender such Notes to you as provided above in this
Section 3, or any of the conditions specified in Section 4 shall not have been
fulfilled to your satisfaction, you shall, at your election, be relieved of all
further obligations under this Agreement, without thereby waiving any rights you
may have by reason of such failure or such nonfulfillment.
SECTION 4. CONDITIONS TO CLOSING.
Your obligation to purchase and pay for the Notes to be sold to you at the
Closing is subject to the fulfillment to your satisfaction, prior to or at the
Closing, of the following conditions:
SECTION 4.1. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Co-Issuers and the Guarantors in this Agreement, the Other
Agreements and each Transaction Document shall be correct when made and at the
time of the Closing.
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<PAGE>
SECTION 4.2. PERFORMANCE; NO DEFAULT. The Co-Issuers shall have
performed and complied with all agreements and conditions contained in this
Agreement required to be performed or complied with by them prior to or at the
Closing and after giving effect to the issue and sale of the Notes (and the
application of the proceeds thereof as contemplated by Schedule 5.14) and no
Default or Event of Default shall have occurred and be continuing. Neither the
Co-Issuers nor any Subsidiary shall have entered into any transaction since the
date of the Memorandum that would have been prohibited by Sections 10.1, 10.3,
10.4, 10.5 or 10.6 had such Sections applied since such date.
SECTION 4.3. COMPLIANCE CERTIFICATES.
(a) OFFICER'S CERTIFICATE. The Co-Issuers each shall have
delivered to you an Officer's Certificate, dated the date of the Closing,
certifying that the conditions specified in Sections 4.1, 4.2 and 4.10 have
been fulfilled.
(b) SECRETARY'S CERTIFICATE. The Co-Issuers each shall have
delivered to you a certificate certifying as to the resolutions attached
thereto and other corporate proceedings relating to the authorization,
execution and delivery of the Notes, this Agreement, the Other Agreements
and the Transaction Documents.
SECTION 4.4. OPINIONS OF COUNSEL. You shall have received opinions in
form and substance satisfactory to you, dated the date of the Closing (a) from
(i) Robin A. Herman, Esq., Senior Vice President and General Counsel for the
Co-Issuers and the Guarantors, covering matters 1 through 6 set forth in
Exhibit 4.4(a) and (ii) Morrison & Foerster LLP, counsel for the Co-Issuers and
the Guarantors, covering the matters 7 through 9 set forth in Exhibit 4.4(a)
and, in each case, covering such other matters incident to the transactions
contemplated hereby as you or your counsel may reasonably request (and the
Co-Issuers hereby instruct its counsel to deliver such opinion to you) and (b)
from Altheimer & Gray, your special counsel in connection with such
transactions, substantially in the form set forth in Exhibit 4.4(b) and covering
such other matters incident to such transactions as you may reasonably request.
SECTION 4.5. TRANSACTION DOCUMENTS. Each of the Transaction Documents
shall have been duly executed and delivered in the respective forms hereinabove
recited and shall be in full force and effect.
SECTION 4.6. PURCHASE PERMITTED BY APPLICABLE LAW, ETC. On the date of
the Closing your purchase of Notes shall (i) be permitted by the laws and
regulations of each jurisdiction to which you are subject, without recourse to
provisions (such as Section 1405(a)(8) of the New York Insurance Law) permitting
limited investments by insurance companies without restriction as to the
character of the particular investment, (ii) not violate any applicable law or
regulation (including, without limitation, Regulation G, T or X of the Board of
Governors of the Federal Reserve System) and (iii) not subject you to any tax,
penalty or liability under or pursuant to any applicable law or regulation,
which law or regulation was not in effect on the date hereof. If requested by
you, you shall have received an Officer's Certificate certifying as to such
matters of fact as you may reasonably specify to enable you to determine whether
such purchase is so permitted.
SECTION 4.7. SALE OF OTHER NOTES. Contemporaneously with the Closing,
the Co-Issuers shall sell to the Other Purchasers, and the Other Purchasers
shall purchase the Notes to be purchased by them at the Closing as specified in
Schedule A.
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<PAGE>
SECTION 4.8. PAYMENT OF SPECIAL COUNSEL FEES. Without limiting the
provisions of Section 15.1, the Co-Issuers shall have paid on or before the
Closing the fees, charges and disbursements of your special counsel referred to
in Section 4.4 to the extent reflected in a statement of such counsel rendered
to the Co-Issuers at least one Business Day prior to the Closing
SECTION 4.9. PRIVATE PLACEMENT NUMBER. A Private Placement number issued
by Standard & Poor's CUSIP Service Bureau (in cooperation with the Securities
Valuation Office of the National Association of Insurance Commissioners) shall
have been obtained for the Notes.
SECTION 4.10. CHANGES IN CORPORATE STRUCTURE. Except as specified in
Schedule 4.10, neither Co-Issuer shall have changed its jurisdiction of
incorporation or been a party to any merger or consolidation or shall have
succeeded to all or any substantial part of the liabilities of any other entity,
at any time following the date of the most recent financial statements referred
to in Schedule 5.5.
SECTION 4.11. PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated by this Agreement
and all documents and instruments incident to such transactions shall be
satisfactory to you and your special counsel, and you and your special counsel
shall have received all such counterpart originals or certified or other copies
of such documents as you or they may reasonably request.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE CO-ISSUERS.
The Co-Issuers jointly and severally represent and warrant to you that:
SECTION 5.1. ORGANIZATION; POWER AND AUTHORITY. Each Co-Issuer and each
Guarantor is a corporation or other legal entity duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, and is duly qualified as a foreign corporation or other legal
organization and is in good standing in each jurisdiction in which such
qualification is required by law, other than those jurisdictions as to which the
failure to be so qualified or in good standing could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. Each
Co-Issuer and each Guarantor has all requisite corporate power and authority to
own or hold under lease the properties it purports to own or hold under lease,
to transact the business it transacts and proposes to transact, to execute and
deliver this Agreement, the Other Agreements, the Notes and the Transaction
Documents to which it is a party and to perform the provisions hereof and
thereof.
SECTION 5.2. AUTHORIZATION, ETC. This Agreement, the Other Agreements,
the Notes and the Transaction Documents have been duly authorized by all
necessary corporate action on the part of each Co-Issuer and each Guarantor that
is a party thereto, and this Agreement, the Other Agreements and the Transaction
Documents constitute, and upon execution and delivery thereof each Note will
constitute, a legal, valid and binding obligation of each Co-Issuer and each
Guarantor which is a party thereto, enforceable against such Co-Issuer or
Guarantor in accordance with its terms, except as such enforceability may be
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
(ii) general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
SECTION 5.3. DISCLOSURE. The Co-Issuers, through their agent,
BancAmerica Robertson Stephens, has delivered to you and each Other Purchaser a
copy of a Private Placement Memorandum, dated March,
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<PAGE>
1998 (the "MEMORANDUM"), relating to the transactions contemplated hereby. The
Memorandum fairly describes, in all material respects, the general nature of the
business and principal properties of the Company and its Subsidiaries. Except
as disclosed in Schedule 5.3, this Agreement, the Memorandum, the documents,
certificates or other writings delivered to you by or on behalf of the Company
or any of its Subsidiaries in connection with the transactions contemplated
hereby and the financial statements listed in Schedule 5.5, taken as a whole, do
not contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading in light
of the circumstances under which they were made. Except as disclosed in the
Memorandum or as expressly described in Schedule 5.3, or in one of the
documents, certificates or other writings identified therein, or in the
financial statements listed in Schedule 5.5, since December 31, 1997 there has
been no change in the financial condition, operations, business, properties or
prospects of the Company or any of its Subsidiaries except changes that
individually or in the aggregate could not reasonably be expected to have a
Material Adverse Effect. There is no fact known to the Company or any of its
Subsidiaries that could reasonably be expected to have a Material Adverse Effect
that has not been set forth herein or in the Memorandum or in the other
documents, certificates and other writings delivered to you by or on behalf of
the Company or any of its Subsidiaries specifically for use in connection with
the transactions contemplated hereby.
SECTION 5.4. ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES;
AFFILIATES.
(a) Schedule 5.4 contains (except as noted therein) complete
and correct lists (i) of the Subsidiaries of each Co-Issuer, showing, as to
each Subsidiary, the correct name thereof, the jurisdiction of its
organization, and the percentage of shares of each class of its capital
stock or similar equity interests outstanding owned by the Co-Issuer and
each of its other Subsidiaries, (ii) of each Co-Issuer's Affiliates, other
than Subsidiaries, and (iii) of the Company's and each Co-Issuer's
respective directors and senior officers. The Co-Issuers are Wholly-Owned
Subsidiaries of the Company. There are no Unrestricted Subsidiaries.
(b) All of the outstanding shares of capital stock or similar
equity interests of each Subsidiary shown in Schedule 5.4 as being owned by
a Co-Issuer and its Subsidiaries have been validly issued, are fully paid
and nonassessable and are owned by a Co-Issuer or another Subsidiary free
and clear of any Lien (except as otherwise disclosed in Schedule 5.4).
(c) Each Subsidiary identified in Schedule 5.4 is a corporation
or other legal entity duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization, and is duly qualified
as a foreign corporation or other legal entity and is in good standing in
each jurisdiction in which such qualification is required by law, other
than those jurisdictions as to which the failure to be so qualified or in
good standing could not, individually or in the aggregate, reasonably be
expected have a Material Adverse Effect. Each such Subsidiary has the
corporate or other power and authority to own or hold under lease the
properties it purports to own or hold under lease and to transact the
business it transacts and proposes to transact.
(d) No Subsidiary of either Co-Issuer is a party to, or
otherwise subject to any legal restriction or any agreement (other than the
agreements listed on Schedule 5.4 and customary limitations imposed by
corporate law statutes) restricting the ability of such Subsidiary to pay
dividends out of profits or make any other similar distributions of profits
to any Co-Issuer or any of its Subsidiaries that owns outstanding shares of
capital stock or similar equity interests of such Subsidiary.
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<PAGE>
SECTION 5.5. FINANCIAL STATEMENTS. The Company has delivered to each
Purchaser copies of the financial statements of the Company and its Subsidiaries
listed on Schedule 5.5. All of said financial statements (including in each
case the related schedules and notes) fairly present in all material respects
the consolidated financial position of the Company and its Subsidiaries as of
the respective dates specified in such Schedule and the consolidated results of
their operations and cash flows for the respective periods so specified and have
been prepared in accordance with GAAP consistently applied throughout the
periods involved except as set forth in the notes thereto (subject, in the case
of any interim financial statements, to normal year-end adjustments).
SECTION 5.6. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC. The
execution, delivery and performance by each Co-Issuer and each Guarantor of this
Agreement, the Other Agreements, the Notes and the Transaction Documents will
not (i) contravene, result in any breach of, or constitute a default under, or
result in the creation of any Lien in respect of any property of the Company or
any of its Subsidiaries under, any indenture, mortgage, deed of trust, loan,
purchase or credit agreement, lease, corporate charter or by-laws, or any other
agreement or instrument to which the Company or any of its Subsidiaries is bound
or by which the Company or any of its Subsidiaries or any of their respective
properties may be bound or affected, (ii) conflict with or result in a breach of
any of the terms, conditions or provisions of any order, judgment, decree, or
ruling of any court, arbitrator or Governmental Authority applicable to the
Company or any of its Subsidiaries or (iii) violate any provision of any statute
or other rule or regulation of any Governmental Authority applicable to the
Company or any of its Subsidiaries, which individually or in the aggregate could
reasonably be expected to have a Material Adverse Effect.
SECTION 5.7. GOVERNMENTAL AUTHORIZATIONS, ETC. No consent, approval or
authorization of, or registration, filing or declaration with, any Governmental
Authority is required in connection with the execution, delivery or performance
by either Co-Issuer or any Guarantor of this Agreement, the Other Agreements,
the Notes or the Transaction Documents.
SECTION 5.8. LITIGATION; OBSERVANCE OF AGREEMENTS, STATUTES AND ORDERS.
(a) Except as disclosed in Schedule 5.8, there are no actions,
suits or proceedings pending or, to the knowledge of the Co-Issuers,
threatened against or affecting the Company or any of its Subsidiaries or
any property of the Company or any of its Subsidiaries in any court or
before any arbitrator of any kind or before or by any Governmental
Authority that, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect.
(b) Neither the Company nor any of its Subsidiaries is in
default under any term of any agreement or instrument to which it is a
party or by which it is bound, or any order, judgment, decree or ruling of
any court, arbitrator or Governmental Authority or is in violation of any
applicable law, ordinance, rule or regulation (including without limitation
Environmental Laws) of any Governmental Authority, which default or
violation, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect.
SECTION 5.9. TAXES. As of and through April 18, 1998, the Company and
its Subsidiaries have filed all tax returns that are required to have been filed
in any jurisdiction, and have paid all taxes shown to be due and payable on such
returns and all other taxes and assessments levied upon them or their
properties, assets, income or franchises, to the extent such taxes and
assessments have become due and payable and before they have become delinquent,
except for any taxes and assessments (i) the amount of which is not
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individually or in the aggregate Material or (ii) the amount, applicability or
validity of which is currently being contested in good faith by appropriate
proceedings and with respect to which the Company or a Subsidiary, as the case
may be, has established adequate reserves in accordance with GAAP. Neither
Co-Issuer knows of any basis for any other tax or assessment that could
reasonably be expected to have a Material Adverse Effect. The charges, accruals
and reserves on the books of the Company and its Subsidiaries in respect of
Federal, state or other taxes for all fiscal periods are adequate. The Federal
income tax liabilities of the Company and its Subsidiaries have been determined
by the Internal Revenue Service and paid for all fiscal years up to and
including the fiscal year ended November, 1993.
SECTION 5.10. TITLE TO PROPERTY; LEASES. The Company and each of its
Subsidiaries has good and sufficient title to their respective properties that
individually or in the aggregate are Material, including all such properties
reflected in the most recent audited balance sheet referred to in Section 5.5 or
purported to have been acquired by the Company or any of its Subsidiaries after
said date (except as sold or otherwise disposed of in the ordinary course of
business), in each case free and clear of Liens prohibited by this Agreement.
All leases that individually or in the aggregate are Material are valid and
subsisting and are in full force and effect in all material respects.
SECTION 5.11. LICENSES, PERMITS, ETC. Except as disclosed in Schedule
5.11,
(a) the Company and each of its Subsidiaries owns or possesses
all licenses, permits, franchises, authorizations, patents, copyrights,
service marks, trademarks and trade names, or rights thereto, that
individually or in the aggregate are Material, without known conflict with
the rights of others;
(b) to the best knowledge of each of the Co-Issuers, no product
or practice of the Company or any of its Subsidiaries infringes in any
material respect any license, permit, franchise, authorization, patent,
copyright, service mark, trademark, trade name or other right owned by any
other Person; and
(c) to the best knowledge of each of the Co-Issuers, there is no
Material violation by any Person of any right of the Company or any of its
Subsidiaries with respect to any patent, copyright, service mark,
trademark, trade name or other right owned or used by the Company or any of
its Subsidiaries.
SECTION 5.12. COMPLIANCE WITH ERISA.
(a) Neither the Company nor any ERISA Affiliate has maintained,
contributed or participated in a plan that is a defined benefit plan (as
defined in Section 3(35) of ERISA) or a Multiemployer Plan at any time.
(b) The Company and each ERISA Affiliate have operated and
administered each Plan in compliance with all applicable laws except for
such instances of noncompliance as have not resulted in and could not
reasonably be expected to result in a Material Adverse Effect. Neither the
Company nor any ERISA Affiliate has incurred any liability pursuant to
Title I or IV of ERISA or the penalty or excise tax provisions of the Code
relating to employee benefit plans (as defined in Section 3 of ERISA), and
no event, transaction or condition has occurred or exists that could
reasonably be expected to result in the incurrence of any such liability by
the Company or any
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ERISA Affiliate, or in the imposition of any Lien on any of the rights,
properties or assets of the Company or any ERISA Affiliate, in either case
pursuant to Title I or IV of ERISA or to such penalty or excise tax
provisions or to Section 401(a)(29) or 412 of the Code, other than such
liabilities or Liens as would not be individually or in the aggregate
Material.
(c) The expected post-retirement benefit obligation (determined
as of the last day of the Company's most recently ended fiscal year in
accordance with Financial Accounting Standards Board Statement No. 106,
without regard to liabilities attributable to continuation coverage
mandated by section 4980B of the Code) of the Company and each of its
Subsidiaries is not Material.
(d) The execution and delivery of this Agreement and the
issuance and sale of the Notes hereunder will not involve any transaction
that is subject to the prohibitions of section 406 of ERISA or in
connection with which a tax could be imposed pursuant to section
4975(c)(1)(A)-(D) of the Code. The representation by the Co-Issuers in the
first sentence of this Section 5.12(d) is made in reliance upon and subject
to the accuracy of your representation in Section 6.2 as to the sources of
the funds used to pay the purchase price of the Notes to be purchased by
you. Schedule 5.12 contains a complete and correct list of all ERISA
Affiliates and all Plans with respect to which the Company or any affiliate
is a party in interest or in respect of which the Notes could constitute an
employer security. For purposes of this Section, the term "party in
interest" has the meaning specified in section 3 of ERISA and the terms
"affiliate" and "employer security" have the meaning specified in section
V(a)(1) and V(c), respectively, of PTE 95-60.
SECTION 5.13. PRIVATE OFFERING BY THE COMPANY AND THE CO-ISSUERS. Neither
the Company nor either Co-Issuer nor anyone acting on their behalf has offered
the Notes or any similar securities for sale to, or solicited any offer to buy
any of the same from, or otherwise approached or negotiated in respect thereof
with, any person other than you, the Other Purchasers and not more than 46 other
Institutional Investors, each of which has been offered the Notes at a private
sale for investment. Neither the Company nor any Co-Issuer nor anyone acting on
its behalf has taken, or will take, any action that would subject the issuance
or sale of the Notes to the registration requirements of Section 5 of the
Securities Act.
SECTION 5.14. USE OF PROCEEDS; MARGIN REGULATIONS. The Co-Issuers will
apply the proceeds of the sale of the Notes as set forth in Schedule 5.14. No
part of the proceeds from the sale of the Notes hereunder will be used, directly
or indirectly, for the purpose of buying or carrying any margin stock within the
meaning of Regulation G of the Board of Governors of the Federal Reserve System
(12 CFR 207), or for the purpose of buying or carrying or trading in any
securities under such circumstances as to involve the Company in a violation of
Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a
violation of Regulation T of said Board (12 CFR 220). Margin stock does not
constitute more than 5.0% of the value of the consolidated assets of the Company
and its Subsidiaries and the Company does not have any present intention that
margin stock will constitute more than 25% of the value of such assets. As used
in this Section, the terms "margin stock" and "purpose of buying or carrying"
shall have the meanings assigned to them in said Regulation G.
SECTION 5.15. EXISTING INDEBTEDNESS; FUTURE LIENS.
(a) Except as described therein, Schedule 5.15 sets forth a
complete and correct list of all outstanding Indebtedness of the Company
and its Subsidiaries as of April 18, 1998, since which date there has been
no Material change in the amounts, interest rates, sinking funds,
installment
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payments or maturities of the Indebtedness of the Company or its
Subsidiaries. Neither the Company nor any Subsidiary is in default and no
waiver of default is currently in effect, in the payment of any principal
or interest on any Indebtedness of the Company or such Subsidiary and no
event or condition exists with respect to any Indebtedness of the Company
or any Subsidiary that would permit (or that with notice or the lapse of
time, or both, would permit) one or more Persons to cause such Indebtedness
to become due and payable before its stated maturity or before its
regularly scheduled dates of payment.
(b) Except as disclosed in Schedule 5.15, neither the Company
nor any Subsidiary has agreed or consented to cause or permit in the future
(upon the happening of a contingency or otherwise) any of its property,
whether now owned or hereafter acquired, to be subject to a Lien not
permitted by Section 10.3.
SECTION 5.16. FOREIGN ASSETS CONTROL REGULATIONS, ETC. Neither the sale
of the Notes by the Co-Issuers hereunder nor their use of the proceeds thereof
will violate the Trading with the Enemy Act, as amended, or any of the foreign
assets control regulations of the United States Treasury Department (31 CFR,
Subtitle B, Chapter V, as amended) or any enabling legislation or executive
order relating thereto.
SECTION 5.17. STATUS UNDER CERTAIN STATUTES. Neither the Company nor any
of its Subsidiaries is subject to regulation under the Investment Company Act of
1940, as amended, the Public Utility Holding Company Act of 1935, as amended,
the Transportation Acts (49 U.S.C.), as amended, or the Federal Power Act, as
amended.
SECTION 5.18. ENVIRONMENTAL MATTERS. Neither the Company nor any of its
Subsidiaries has knowledge of any claim or has received any notice of claim, and
no proceeding has been instituted raising any claim against the Company or any
of its Subsidiaries or any of their respective real properties now or formerly
owned, leased or operated by any of them or other assets, alleging any damage to
the environment or violation of any Environmental Laws, except, in each case,
such as could not reasonably be expected to result in a Material Adverse Effect.
Except as otherwise disclosed to you in writing:
(a) neither the Company nor any of its Subsidiaries has
knowledge of any facts which would give rise to any claim, public or
private, of violation of Environmental Laws or damage to the environment
emanating from, occurring on or in any way related to real properties now
or formerly owned, leased or operated by any of them or to other assets or
their use, except, in each case, such as could not reasonably be expected
to result in a Material Adverse Effect;
(b) neither the Company nor any of its Subsidiaries has stored
any Hazardous Materials on real properties now or formerly owned, leased or
operated by any of them and has not disposed of any Hazardous Materials in
a manner contrary to any Environmental Laws in each case in any manner that
could reasonably be expected to result in a Material Adverse Effect; and
(c) neither the Company nor any of its Subsidiaries has any
knowledge that any building on any real property now owned, leased or
operated by the Company or any of its Subsidiaries is not in compliance
with applicable Environmental Laws, except where failure to comply could
not reasonably be expected to result in a Material Adverse Effect.
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SECTION 5.19. SOLVENCY. Each Co-Issuer and each Guarantor is Solvent and,
immediately after giving effect to the issue and sale of the Notes and the
consummation of the other transactions contemplated by this Agreement, each
Co-Issuer and each Guarantor will be Solvent. For purposes of this Section
5.19, the term "SOLVENT" shall mean, with respect to any Person, that:
(a) the assets of such Person, at a fair valuation (assuming
that, in each case, legally permissible capital contributions have been
made whether or not such contributions are actually made), exceed the total
liabilities (including contingent, subordinated, unmatured and unliquidated
liabilities) of such Person;
(b) such Person believes it has sufficient cash flow to enable
it to pay its debts as they mature; and
(c) such Person does not have unreasonably small capital with
which to engage in its anticipated business.
SECTION 5.20. MATTERS RELATING TO THE COLLATERAL. The Liens granted in
favor of the Collateral Agent pursuant to the Security Documents in respect of
the collateral described therein constitute and will constitute first priority
perfected security interests under the Uniform Commercial Code as in effect in
each applicable jurisdiction, entitled to all rights, benefits and priorities as
provided by such Uniform Commercial Code or other applicable law. Upon the
filing of financing statements relating to such security interests in each
office and in each jurisdiction where required in order to perfect the security
interests described above and recordations of the Security Agreements in the
United States Patent and Trademark Office and the United States Copyright
Office, all such action as is necessary or advisable to establish such rights of
the Collateral Agent will have been taken. There will be upon execution and
delivery of the Security Agreements and such filings no necessity for any
further action in order to preserve, protect and continue such rights, except
the filing of continuation statements with respect to such financing statements
within six months prior to each five year anniversary of the filing of such
financing statements.
SECTION 6. REPRESENTATIONS OF THE PURCHASER.
SECTION 6.1. PURCHASE FOR INVESTMENT. You represent that you are
purchasing the Notes for your own account or for one or more separate accounts
maintained by you or for the account of one or more pension or trust funds and
not with a view to the distribution thereof, provided that the disposition of
your or their property shall at all times be within your or their control. You
understand that the Notes have not been registered under the Securities Act and
may be resold only if registered pursuant to the provisions of the Securities
Act or if an exemption from registration is available, except under
circumstances where neither such registration nor such an exemption is required
by law, and that the Company is not required to register the Notes.
SECTION 6.2. SOURCE OF FUNDS. You represent that at least one of the
following statements is an accurate representation as to each source of funds (a
"SOURCE") to be used by you to pay the purchase price of the Notes to be
purchased by you hereunder:
(a) the Source is an "insurance company general account" as
defined in the United States Department of Labor Prohibited Transaction
Exemption ("PTE") 95-60 (60 FR 35925, July 12, 1995) and in respect thereof
you represent that there is no "employee benefit plan" (as defined in
Section
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3(3) of ERISA and Section 4975(e)(1) of the Code) established or maintained
by you, treating as a single plan all plans maintained by the same employer
or employee organization or affiliate thereof, with respect to which the
amount of the general account reserves and liabilities of all contracts
held by or on behalf of such plan exceeds 10% of the total reserves and
liabilities of such general account (exclusive of separate account
liabilities) PLUS surplus, as set forth in the National Association of
Insurance Commissioners' Annual Statement filed with your state of
domicile; or
(b) if you are an insurance company, the Source does not include
assets allocated to any separate account maintained by you in which any
employee benefit plan (or its related trust) has any interest, other than a
separate account that is maintained solely in connection with your fixed
contractual obligations under which the amounts payable, or credited, to
such plan and to any participant or beneficiary of such plan (including any
annuitant) are not affected in any manner by the investment performance of
the separate account; or
(c) the Source is either (i) an insurance company pooled
separate account, within the meaning of PTE 90-1 (issued January 29, 1990),
or (ii) a bank collective investment fund, within the meaning of the PTE
91-38 (issued July 12, 1991) and, except as you have disclosed to the
Company in writing pursuant to this paragraph (c), no employee benefit plan
or group of plans maintained by the same employer or employee organization
beneficially owns more than 10% of all assets allocated to such pooled
separate account or collective investment fund; or
(d) the Source constitutes assets of an "investment fund"
(within the meaning of Part V of PTE 84-14 (the "QPAM EXEMPTION") managed
by a "qualified professional asset manager" or "QPAM" (within the meaning
of Part V of the QPAM Exemption), no employee benefit plan's assets that
are included in such investment fund, when combined with the assets of all
other employee benefit plans established or maintained by the same employer
or by an affiliate (within the meaning of Section V(c)(1) of the QPAM
Exemption) of such employer or by the same employee organization and
managed by such QPAM, exceed 20% of the total client assets managed by such
QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are
satisfied, neither the QPAM nor a person controlling or controlled by the
QPAM (applying the definition of "control" in Section V(e) of the QPAM
Exemption) owns a 5% or more interest in the Company and (i) the identity
of such QPAM and (ii) the names of all employee benefit plans whose assets
are included in such investment fund have been disclosed to the Company in
writing pursuant to this paragraph (d); or
(e) the Source is a governmental plan; or
(f) the Source is one or more employee benefit plans, or a
separate account or trust fund comprised of one or more employee benefit
plans, each of which has been identified to the Company in writing pursuant
to this paragraph (f); or
(g) the Source does not include assets of any employee benefit
plan, other than a plan exempt from the coverage of ERISA and the
provisions of Section 4975 of the Code.
As used in this Section 6.2, the terms "employee benefit plan",
"governmental plan", "party in interest" and "separate account" shall have the
respective meanings assigned to such terms in Section 3 of ERISA.
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SECTION 7. INFORMATION AS TO COMPANY.
SECTION 7.1. FINANCIAL AND BUSINESS INFORMATION. The Co-Issuers shall
deliver to each holder of Notes that is an Institutional Investor:
(a) QUARTERLY STATEMENTS -- within 60 days after the end of each
quarterly fiscal period in each fiscal year of the Company (other than the
last quarterly fiscal period of each such fiscal year), duplicate copies
of:
(i) the consolidated balance sheet of the Company and
its Subsidiaries as at the end of such quarter,
(ii) the consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its
Subsidiaries for such quarter, and (in the case of the second and
third quarters) for the portion of the fiscal year ending with
such quarter, setting forth in each case in comparative form the
figures for the corresponding periods in the previous fiscal year,
all in reasonable detail, prepared in accordance with GAAP
applicable to quarterly financial statements generally, and
certified by a Senior Financial Officer as fairly presenting, in
all material respects, the financial position of the companies
being reported on and their results of operations and cash flows,
subject to changes resulting from year-end adjustments, and
(iii) in the event that as of or at the end of such
quarterly period (A) Consolidated Net Income is less than 95% of
the consolidated net income (or loss) of the Company and its
Subsidiaries, (B) Consolidated Total Assets are less than 95% of
total assets of the Company and its Subsidiaries or
(C) Consolidated Income Available for Fixed Charges is less than
95% of consolidated net income plus income tax plus interest
expense plus operating lease expense of the Company and its
Subsidiaries, unaudited consolidated statements of the Co-Issuers,
the Company and its Restricted Subsidiaries as set forth in
clauses (i) and (ii) above;
PROVIDED that, so long as no Unrestricted Subsidiaries existed at any time
during the periods covered by such financial statements, delivery within the
time period specified above of copies of the Company's Quarterly Report on Form
10-Q prepared in compliance with the requirements therefor and filed with the
Securities and Exchange Commission shall be deemed to satisfy the requirements
of this Section 7.1(a).
(b) ANNUAL STATEMENTS -- within 120 days after the end of each
fiscal year of the Company, duplicate copies of:
(i) the consolidated balance sheet of the Company and
its Subsidiaries, as at the end of such year,
(ii) the consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its
Subsidiaries for such year, and
(iii) in the event that as of or at the end of such annual
period (A) Consolidated Net Income is less than 95% of the
consolidated net income (or loss) of the Company and
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its Subsidiaries, (B) Consolidated Total Assets are less than 95% of
total assets of the Company and its Subsidiaries or (C) Consolidated
Income Available for Fixed Charges is less than 95% of consolidated
net income plus income tax plus interest expense plus operating lease
expense of the Company and its Subsidiaries, unaudited consolidated
statements of the Co-Issuers, the Company and its Restricted
Subsidiaries as set forth in clauses (i) and (ii) above;
setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail, prepared in accordance with GAAP,
and accompanied
(A) by an opinion thereon of independent certified public
accountants of recognized national standing, which opinion shall
state that such financial statements present fairly, in all
material respects, the financial position of the companies being
reported upon and their results of operations and cash flows and
have been prepared in conformity with GAAP, and that the
examination of such accountants in connection with such financial
statements has been made in accordance with generally accepted
auditing standards, and that such audit provides a reasonable
basis for such opinion in the circumstances, and
(B) a certificate of such accountants stating that they
have reviewed this Agreement insofar as it relates to accounting
matters and stating further whether, in making their audit, they
have become aware of any condition or event that then constitutes
a Default or an Event of Default insofar as it relates to
accounting matters, and, if they are aware that any such
condition or event then exists, specifying the nature and period
of the existence thereof,
PROVIDED that, so long as no Unrestricted Subsidiaries existed at any time
during the periods covered by such financial statements, the delivery
within the time period specified above of the Company's Annual Report on
Form 10-K for such fiscal year (together with the Company's annual report
to shareholders, if any, prepared pursuant to Rule 14a-3 under the Exchange
Act) prepared in accordance with the requirements therefor and filed with
the Securities and Exchange Commission, together with the accountant's
certificate described in clause (B) above, shall be deemed to satisfy the
requirements of this Section 7.1(b);
(c) SEC AND OTHER REPORTS -- promptly upon their becoming available,
one copy of (i) each financial statement, report, notice or proxy statement
sent by the Company or any Subsidiary to public securities holders
generally, and (ii) each regular or periodic report, each registration
statement (without exhibits except as expressly requested by such holder),
and each prospectus and all amendments thereto filed by the Company or any
Subsidiary with the Securities and Exchange Commission and of all press
releases and other statements made available generally by the Company or
any Subsidiary to the public concerning developments that are Material;
(d) NOTICE OF DEFAULT OR EVENT OF DEFAULT -- promptly, and in any
event within five days after a Responsible Officer becoming aware of the
existence of any Default or Event of Default or that any Person has given
any notice or taken any action with respect to a claimed default hereunder
or that any Person has given any notice or taken any action with respect to
a claimed default of the
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type referred to in Section 11(f), a written notice specifying the nature
and period of existence thereof and what action the Company is taking or
proposes to take with respect thereto;
(e) ERISA MATTERS -- promptly, and in any event within five days
after a Responsible Officer becoming aware of any of the following, a
written notice setting forth the nature thereof and the action, if any,
that the Company or an ERISA Affiliate proposes to take with respect
thereto:
(i) with respect to any Plan, any reportable event, as defined
in section 4043(b) of ERISA and the regulations thereunder, for which
notice thereof has not been waived pursuant to such regulations as in
effect on the date hereof; or
(ii) the taking by the PBGC of steps to institute, or the
threatening by the PBGC of the institution of, proceedings under
section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan, or the receipt by the Company or any
ERISA Affiliate of a notice from a Multiemployer Plan that such action
has been taken by the PBGC with respect to such Multiemployer Plan; or
(iii) any event, transaction or condition that could result in
the incurrence of any liability by the Company or any ERISA Affiliate
pursuant to Title I or IV of ERISA or the penalty or excise tax
provisions of the Code relating to employee benefit plans, or in the
imposition of any Lien on any of the rights, properties or assets of
the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA
or such penalty or excise tax provisions, if such liability or Lien,
taken together with any other such liabilities or Liens then existing,
could reasonably be expected to have a Material Adverse Effect; or
(iv) any change in the parties which, upon the occurrence of
such event, would be required to be listed on Schedule 5.12 after
Closing and before the later of (A) full prepayment (including any
Make-Whole Amount) of or (B) sale of the Notes by the initial holder
of the Notes;
(f) NOTICES FROM GOVERNMENTAL AUTHORITY -- promptly, and in any event
within 30 days of receipt thereof, copies of any notice to the Company or
any Subsidiary from any Federal or state Governmental Authority relating to
any order, ruling, statute or other law or regulation that could reasonably
be expected to have a Material Adverse Effect; and
(g) REQUESTED INFORMATION -- with reasonable promptness, such other
data and information relating to the business, operations, affairs,
financial condition, assets or properties of the Company or any of its
Subsidiaries or relating to the ability of the Co-Issuers to perform their
obligations hereunder and under the Notes or the ability of either
Co-Issuer or any Guarantor to perform its obligations under any Transaction
Document to which it is a party in each case as from time to time may be
reasonably requested by any such holder of Notes, or such information
regarding the Company required to satisfy the requirements of 17 C.F.R.
Section 230.144A as amended from time to time, in connection with any
contemplated transfer of the Notes.
SECTION 7.2. OFFICER'S CERTIFICATE. Each set of financial statements
delivered to a holder of Notes pursuant to Section 7.1(a) or Section 7.1(b)
hereof shall be accompanied by a certificate of a Senior Financial Officer
setting forth:
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(a) COVENANT COMPLIANCE -- the information (including detailed
calculations) required in order to establish whether the Company was in
compliance with the requirements of Section 10.4 through Section 10.8
hereof, inclusive, during the quarterly or annual period covered by the
statements then being furnished (including with respect to each such
Section, where applicable, the calculations of the maximum or minimum
amount, ratio or percentage, as the case may be, permissible under the
terms of such Sections, and the calculation of the amount, ratio or
percentage then in existence); and
(b) EVENT OF DEFAULT -- a statement that such officer has reviewed
the relevant terms hereof and has made, or caused to be made, under his or
her supervision, a review of the transactions and conditions of the
Company and its Subsidiaries from the beginning of the quarterly or annual
period covered by the statements then being furnished to the date of the
certificate and that such review shall not have disclosed the existence
during such period of any condition or event that constitutes a Default or
an Event of Default or, if any such condition or event existed or exists
(including, without limitation, any such event or condition resulting from
the failure of the Company or any Subsidiary to comply with any
Environmental Law), specifying the nature and period of existence thereof
and what action the Co-Issuers shall have taken or proposes to take with
respect thereto.
SECTION 7.3. INSPECTION. The Co-Issuers shall, and shall cause the
Company and its Subsidiaries to, permit the representatives of each holder of
Notes that is an Institutional Investor:
(a) NO DEFAULT -- if no Default or Event of Default then exists,
at the expense of such holder and upon reasonable prior notice to the
Company, to visit the principal executive office of the Company or any of
its Subsidiaries, to discuss the affairs, finances and accounts of the
Company and its Subsidiaries with such Person's officers, and (with the
consent of such Person, which consent will not be unreasonably withheld)
its independent public accountants, and (with the consent of such Person,
which consent will not be unreasonably withheld) to visit the other
offices and properties of the Company and any of its Subsidiaries, all at
such reasonable times and as often as may be reasonably requested in
writing; and
(b) DEFAULT -- if a Default or Event of Default then exists, at
the expense of the Co-Issuers, to visit and inspect any of the offices or
properties of the Company or any of its Subsidiaries, to examine all their
respective books of account, records, reports and other papers, to make
copies and extracts therefrom, and to discuss their respective affairs,
finances and accounts with their respective officers and independent
public accountants (and by this provision the Co-Issuers authorize (and
shall cause the Company and each of its Subsidiaries to authorize) said
accountants to discuss the affairs, finances and accounts of the Company
and its Subsidiaries), all at such times and as often as may be requested.
SECTION 8. PREPAYMENT OF THE NOTES.
SECTION 8.1. REQUIRED PREPAYMENTS. On May 15, 2002 and on each
May 15 thereafter to and including May 15, 2007 the Co-Issuers will prepay
$4,285,714.29 principal amount (or such lesser principal amount as shall then be
outstanding) of the Notes at par and without payment of the Make-Whole Amount or
any premium. The Co-Issuers will pay all of the principal amount of the Notes
remaining, if any, on May 15, 2008. Upon any partial prepayment of the Notes
pursuant to Section 8.2 or purchase of the Notes
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permitted-by Section 8.5, the principal amount of each required prepayment of
the Notes becoming due under this Section 8.1 on and after the date of such
prepayment or purchase shall be reduced in the same proportion as the aggregate
unpaid principal amount of the Notes is reduced as a result of such prepayment
or purchase.
SECTION 8.2. OPTIONAL PREPAYMENTS WITH MAKE-WHOLE AMOUNT. The
Co-Issuers may, at their option, upon notice as provided below, prepay at any
time all, or from time to time any part of, the Notes, in an amount not less
than $3,000,000 of the aggregate principal amount (or integral multiples of
$100,000 in excess of such amount) of the Notes then outstanding in the case of
a partial prepayment, at 100% of the principal amount so prepaid, plus the
Make-Whole Amount determined for the prepayment date with respect to such
principal amount. The Co-Issuers will give each holder of Notes written notice
of each optional prepayment under this Section 8.2 not less than 30 days and not
more than 60 days prior to the date fixed for such prepayment. Each such notice
shall specify such date, the aggregate principal amount of the Notes to be
prepaid on such date, the principal amount of each Note held by such holder to
be prepaid (determined in accordance with Section 8.3), and the interest to be
paid on the prepayment date with respect to such principal amount being prepaid,
and shall be accompanied by a certificate of a Senior Financial Officer as to
the estimated Make-Whole Amount due in connection with such prepayment
(calculated as if the date of such notice were the date of the prepayment),
setting forth the details of such computation. Two Business Days prior to such
prepayment, the Co-Issuers shall deliver to each holder of Notes a certificate
of a Senior Financial Officer specifying the calculation of such Make-Whole
Amount as of the specified preparation date.
SECTION 8.3. ALLOCATION OF PARTIAL PREPAYMENTS. In the case of each
partial prepayment of the Notes, the principal amount of the Notes to be prepaid
shall be allocated among all of the Notes at the time outstanding in proportion,
as nearly as practicable, to the respective unpaid principal amounts thereof not
theretofore called for prepayment.
SECTION 8.4. MATURITY; SURRENDER, ETC. In the case of each
prepayment of Notes pursuant to this Section 8, the principal amount of each
Note to be prepaid shall mature and become due and payable on the date fixed for
such prepayment, together with interest on such principal amount accrued to such
date and the applicable Make-Whole Amount, if any. From and after such date,
unless the Co-Issuers shall fail to pay such principal amount when so due and
payable, together with the interest and Make-Whole Amount, if any, as aforesaid,
interest on such principal amount shall cease to accrue. Any Note paid or
prepaid in full shall be surrendered to the Co-Issuers and cancelled and shall
not be reissued, and no Note shall be issued in lieu of any prepaid principal
amount of any Note.
SECTION 8.5. PURCHASE OF NOTES. Each Co-Issuer will not and will not
permit any Affiliate to purchase, redeem, prepay or otherwise acquire, directly
or indirectly, any of the outstanding Notes except upon the payment or
prepayment of the Notes in accordance with the terms of this Agreement, and the
Notes. Each Co-Issuer will promptly cancel all Notes acquired by it or any
Affiliate pursuant to any payment, prepayment or purchase of Notes pursuant to
any provision of this Agreement and no Notes may be issued in substitution or
exchange for any such Notes.
SECTION 8.6. MAKE-WHOLE AMOUNT. The term "MAKE-WHOLE AMOUNT" means,
with respect to any Note, an amount equal to the excess, if any, of the
Discounted Value of the Remaining Scheduled Payments with respect to the Called
Principal of such Note over the amount of such Called Principal, provided that
the Make-Whole Amount may in no event be less than zero. For the purposes of
determining the Make-Whole Amount, the following terms have the following
meanings:
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"CALLED PRINCIPAL" means, with respect to any Note, the principal of
such Note that is to be prepaid pursuant to Section 8.2 or has become or
is declared to be immediately due and payable pursuant to Section 12.1, as
the context requires.
"DISCOUNTED VALUE" means, with respect to the Called Principal of
any Note, the amount obtained by discounting all Remaining Scheduled
Payments with respect to such Called Principal from their respective
scheduled due dates to the Settlement Date with respect to such Called
Principal, in accordance with accepted financial practice and at a
discount factor (applied on the same periodic basis as that on which
interest on the Notes is payable) equal to the Reinvestment Yield with
respect to such Called Principal.
"REINVESTMENT YIELD" means, with respect to the Called Principal of
any Note, 0.50% over the yield to maturity implied by (i) the yields
reported, as of 10:00 A.M. (New York City time) on the second Business Day
preceding the Settlement Date with respect to such Called Principal, on
the display designated as "Page USD" on the Bloomberg Financial Market
Service (or such other display as may replace Page USD on the Bloomberg
Financial Market Service) for actively traded U.S. Treasury securities
having a maturity equal to the Remaining Average Life of such Called
Principal as of such Settlement Date, or (ii) if such yields are not
reported as of such time or the yields reported as of such time are not
ascertainable, the Treasury Constant Maturity Series Yields reported, for
the latest day for which such yields have been so reported as of the
second Business Day preceding the Settlement Date with respect to such
Called Principal, in Federal Reserve Statistical Release H. 15 (519) (or
any comparable successor publication) for actively traded U.S. Treasury
securities having a constant maturity equal to the Remaining Average Life
of such Called Principal as of such Settlement Date. Such implied yield
will be determined, if necessary, by (a) converting U.S. Treasury bill
quotations to bond-equivalent yields in accordance with accepted financial
practice and (b) interpolating linearly between (1) the actively traded
U.S. Treasury security with the maturity closest to and greater than the
Remaining Average Life and (2) the actively traded U.S. Treasury security
with the maturity closest to and less than the Remaining Average Life.
"REMAINING AVERAGE LIFE" means, with respect to any Called
Principal, the number of years (calculated to the nearest one-twelfth
year) obtained by dividing (i) such Called Principal into (ii) the sum of
the products obtained by multiplying (a) the principal component of each
Remaining Scheduled Payment with respect to such Called Principal by (b)
the number of years (calculated to the nearest one-twelfth year) that will
elapse between the Settlement Date with respect to such Called Principal
and the scheduled due date of such Remaining Scheduled Payment.
"REMAINING SCHEDULED PAYMENTS" means, with respect to the Called
Principal of any Note, all payments of such Called Principal and interest
thereon that would be due after the Settlement Date with respect to such
Called Principal if no payment of such Called Principal were made prior to
its scheduled due date, provided that if such Settlement Date is not a
date on which interest payments are due to be made under the terms of the
Notes, then the amount of the next succeeding scheduled interest payment
will be reduced by the amount of interest accrued to such Settlement Date
and required to be paid on such Settlement Date pursuant to Section 8.2 or
12.1.
"SETTLEMENT DATE" means, with respect to the Called Principal of any
Note, the date on which such Called Principal is to be prepaid pursuant to
Section 8.2 or has become or is declared to be immediately due and payable
pursuant to Section 12.1, as the context requires.
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SECTION 9. AFFIRMATIVE COVENANTS.
Each Co-Issuer covenants that so long as any of the Notes are outstanding:
SECTION 9.1. COMPLIANCE WITH LAW. Each Co-Issuer will, and will
cause the Company and its Restricted Subsidiaries to, comply with all laws,
ordinances or governmental rules or regulations to which each of them is
subject, including, without limitation, Environmental Laws, and will obtain and
maintain in effect all licenses, certificates, permits, franchises and other
governmental authorizations necessary to the ownership of their respective
properties or to the conduct of their respective businesses, in each case to the
extent necessary to ensure that non-compliance with such laws, ordinances or
governmental rules or regulations or failures to obtain or maintain in effect
such licenses, certificates, permits, franchises and other governmental
authorizations could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
SECTION 9.2. INSURANCE. Each Co-Issuer will, and will cause the
Company and its Restricted Subsidiaries to, maintain, with financially sound and
reputable insurers, insurance with respect to their respective properties and
businesses against such casualties and contingencies, of such types, on such
terms and in such amounts (including deductibles, co-insurance and
self-insurance, if adequate reserves are maintained with respect thereto) as is
customary in the case of entities of established reputations engaged in the same
or a similar business and similarly situated.
SECTION 9.3. MAINTENANCE OF PROPERTIES. Each Co-Issuer will, and
will cause the Company and its Restricted Subsidiaries to, maintain and keep, or
cause to be maintained and kept, their respective properties in good repair,
working order and condition (other than ordinary wear and tear), so that the
business carried on in connection therewith may be properly conducted at all
times, provided that this Section shall not prevent the Company or any of its
Restricted Subsidiaries from discontinuing the operation and the maintenance of
any of its properties if such discontinuance is desirable in the conduct of its
business and the Co-Issuers have concluded that such discontinuance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
SECTION 9.4. PAYMENT OF TAXES AND CLAIMS. Each Co-Issuer will, and
will cause the Company and its Restricted Subsidiaries to, file all tax returns
required to be filed in any jurisdiction and to pay and discharge all taxes
shown to be due and payable on such returns and all other taxes, assessments,
governmental charges, or levies imposed on them or any of their properties,
assets, income or franchises, to the extent such taxes and assessments have
become due and payable and before they have become delinquent and all claims for
which sums have become due and payable that have or might become a Lien on
properties or assets of either Co-Issuer, the Company or any of its Restricted
Subsidiaries, provided that none of the Co-Issuers, the Company or any
Restricted Subsidiary need pay any such tax or assessment or claims if (i) the
amount, applicability or validity thereof is contested by such Person on a
timely basis in good faith and in appropriate proceedings, and such Person has
established adequate reserves therefor in accordance with GAAP on the books of
such Person or (ii) the nonpayment of all such taxes and assessments in the
aggregate could not reasonably be expected to have a Material Adverse Effect.
SECTION 9.5. CORPORATE EXISTENCE, ETC. Subject to Sections 10.2 and
10.6, each Co-Issuer will, and will cause the Company and its Restricted
Subsidiaries to, at all times preserve and keep in full force and effect the
corporate existence of each of itself and its Restricted Subsidiaries (unless
merged into the Company, a Co-Issuer or a Wholly-Owned Restricted Subsidiary)
and all respective rights and franchises of
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each Co-Issuer, the Company and its Restricted Subsidiaries unless, in the
case of Subsidiaries which are not Guarantors, in the good faith judgment of the
Co-Issuers, the termination of or failure to preserve and keep in full force and
effect such corporate existence, right or franchise could not, individually or
in the aggregate, have a Material Adverse Effect.
SECTION 9.6. INACTIVE SUBSIDIARIES; NEW SUBSIDIARIES. Each Co-Issuer
will:
(a) cause any inactive domestic Restricted Subsidiary on Schedule
5.4 hereto which, after the date hereof, commences to transact business
and becomes an active domestic Material Subsidiary, to execute and deliver
a Subsidiary Guaranty and a Guarantor Security Agreement in favor of the
Collateral Agent and such other documentation as may be requested by
holders of the Notes, in form and substance acceptable to the holders of
the Notes;
(b) cause any domestic Restricted Subsidiary acquired or
established subsequent to the date of this Agreement, if such Subsidiary
is an active domestic Material Subsidiary, to execute and deliver a
Subsidiary Guaranty and a Guarantor Security Agreement in favor of the
Collateral Agent and such other documentation as may be requested by
holders of the Notes, in form and substance acceptable to holders of the
Notes;
(c) not permit, at any time, (i) the total assets of all active
domestic Subsidiaries which are not Guarantors to exceed 20% of the
Consolidated Total Assets or (ii) the net income of all active domestic
Subsidiaries which are not Guarantors for the preceding four (4) fiscal
quarter period to exceed 20% of Consolidated Net Income for such period,
without causing one or more of such active domestic Subsidiaries to become
Guarantors as provided in subsections (a) and (b) of this Section as shall
be necessary to comply with the foregoing limitation; and
(d) deliver to each holder of the Notes a revised Schedule 5.4
reflecting the changes referred to in subsections (a) and (b) of this
Section.
SECTION 10. NEGATIVE COVENANTS.
Each Co-Issuer covenants that so long as any of the Notes are outstanding:
SECTION 10.1. TRANSACTIONS WITH AFFILIATES. Each Co-Issuer will not,
and will not permit the Company or any of its Restricted Subsidiaries to, enter
into directly or indirectly any transaction or Material group of related
transactions (including without limitation the purchase, lease, sale or exchange
of properties of any kind or the rendering of any service) with any Affiliate
(other than a Co-Issuer, a Guarantor or a Wholly-Owned Restricted Subsidiary),
except (a) in the ordinary course and pursuant to the reasonable requirements of
such Co-Issuer's or such Guarantor's business and upon fair and reasonable terms
no less favorable to such Co-Issuer or such Guarantor than would be obtainable
in a comparable arm's-length transaction with a Person not an Affiliate or
(b) upon approval of the Board of Directors of the Company and as to which there
is an opinion from an independent, nationally-recognized third-party financial
adviser that such transaction is fair from a financial perspective, which
opinion shall be unqualified except for a qualification with respect to reliance
on financial information from the Co-Issuers or other third parties.
SECTION 10.2. MERGER, CONSOLIDATION, ETC. Subject to Section 10.6,
each Co-Issuer will not, and will not permit the Company or any of its
Restricted Subsidiaries to, consolidate with or merge with any other
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corporation or convey, transfer or lease substantially all of its assets in a
single transaction or series of transactions to any Person, unless:
(a) the merger is a merger of any Restricted Subsidiary with (i)
the Company, (ii) a Co-Issuer, (iii) another Wholly-Owned Restricted
Subsidiary or (iv) another Person so long as the Restricted Subsidiary is
the surviving entity; or
(b) the successor formed by such consolidation or the survivor of
such merger of the Company or a Co-Issuer, or the Person that acquires by
conveyance, transfer or lease substantially all of the assets of the
Company or a Co-Issuer as an entirety, as the case may be, shall be a
solvent corporation organized and existing under the laws of the United
States or any State thereof (including the District of Columbia), and, if
either Co-Issuer is not such corporation, (i) such corporation shall have
executed and delivered to each holder of any Notes its assumption of the
due and punctual performance and observance of each covenant and condition
of this Agreement, the Other Agreements, the Notes and the Transaction
Documents, (ii) such corporation shall have caused to be delivered to each
holder of any Notes an opinion of nationally recognized independent
counsel, or other independent counsel reasonably satisfactory to the
Required Holders, to the effect that all agreements or instruments
effecting such assumption are enforceable in accordance with their terms
and comply with the terms hereof; and (iii) immediately after giving
effect to such transaction, no Default or Event of Default shall have
occurred and be continuing, including, without limitation, under Section
10.4.
Except to the extent provided to the contrary in Section 10.6, no such
conveyance, transfer or lease of substantially all of the assets of either
Co-Issuer or the Company shall have the effect of releasing such Person or any
successor corporation that shall theretofore have become such in the manner
prescribed in this Section 10.2 from its liability under this Agreement or the
Notes.
SECTION 10.3. LIENS. Each Co-Issuer will not, and will not permit the
Company or any of its Restricted Subsidiaries to, incur, assume or suffer to
exist any Lien upon any of its assets now or hereafter owned, or upon the income
or profits thereof, other than:
(a) Liens for property taxes, assessments or other
governmental charges which are not yet due and payable or are being
contested in good faith;
(b) Liens securing landlords, carriers, warehousemen,
mechanics, materialmen and other such Liens incurred in the ordinary
course for sums not yet due and payable or are being contested in good
faith;
(c) Liens incidental to the conduct of such Co-Issuer's, the
Company's or any of its Restricted Subsidiary's, ordinary course of
business, excluding Liens incurred for the borrowing of money;
(d) Liens resulting from judgments, unless such judgments are
not discharged within 60 days or stayed pending appeal or discharged
within 60 days after the expiration of any such stay;
(e) leases, subleases, easements, rights-of-way, restrictions
and other similar charges or encumbrances incidental to the ordinary
conduct of such Co-Issuer's, the Company's, or any of
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its Restricted Subsidiaries' businesses, provided that the aggregate of
such Liens do not materially detract from the value of such property;
(f) Liens securing Indebtedness of the Company or the
Co-Issuers to a Wholly-Owned Restricted Subsidiary or Liens securing
Indebtedness of a Restricted Subsidiary to the Company or the Co-Issuers
or to another Wholly-Owned Restricted Subsidiary;
(g) Liens in existence at Closing;
(h) Liens created to secure Indebtedness, whether incurred or
assumed, to pay all or part of the purchase price or cost of construction
or improvement of property acquired or constructed by the Co-Issuers, the
Company or any of its Restricted Subsidiaries after Closing provided that
(i) any such Liens attach solely to property acquired, constructed or
improved; (ii) the principal amount of the Indebtedness secured by any
such Lien shall not exceed the lesser of (a) the cost to the Co-Issuer,
the Company or the Restricted Subsidiary of such property or (b) the fair
market value (as determined in good faith by the board of directors of the
Company); and (iii) any such Lien shall be created contemporaneously with,
or within 180 days after the acquisition, construction, or improvement of
such property;
(i) any Lien existing on property of a Person immediately
prior to being consolidated with or merged into a Co-Issuer, the Company
or any of its Restricted Subsidiaries, or any Lien existing on any
property acquired by a Co-Issuer, the Company or any of its Restricted
Subsidiaries provided that (i) no such Lien shall have been created or
assumed in contemplation of such consolidation or merger of such Person,
and (ii) each Lien shall extend solely to the property acquired;
(j) any Lien renewing, extending or refunding any Lien
permitted by sections (a) through (i) above, provided that (i) the
principal amount of the Indebtedness secured by such Lien is not
increased, (ii) the maturity of such Indebtedness is not reduced, (iii)
such Lien is not extended to any other property, and (iv) immediately
after such renewal, extension or refunding no Default or Event of Default
would exist; and
(k) Liens which would not otherwise be permitted by clauses
(a) through (j) above, securing Indebtedness of either Co-Issuer, the
Company or any of its Restricted Subsidiaries, so long as all Priority
Debt does not exceed 20% of Consolidated Net Worth.
SECTION 10.4. LIMITATION ON TOTAL INDEBTEDNESS. Each Co-Issuer will
not, and will not permit the ratio of Total Debt to Total Capitalization to
exceed 55%. Each incurrence or draw by the Co-Issuers, the Company or any of
its Restricted Subsidiaries under any revolving credit facility shall be treated
as Indebtedness, notwithstanding Indebtedness outstanding on the date of the
Closing, which is, in turn, subject to the limitations of the applicable
provisions of this Section 10.4.
SECTION 10.5. LIMITATION ON SUBSIDIARY INDEBTEDNESS. Each Co-Issuer
will not permit any of its Restricted Subsidiaries (other than WMS) to incur,
assume or permit to exist, directly or indirectly, any Indebtedness, except:
(a) Indebtedness created hereunder and under the Notes;
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(b) Indebtedness created under the Existing Bank Credit
Facility;
(c) all renewals, extensions, substitutions, refinancings or
replacements, in an amount not to exceed the amount so refinanced, of any
Indebtedness described in clauses (a) and (b) above provided that the
terms, covenants and restrictions in respect of such renewals, extensions,
substitutions, refinancings or replacements are not materially more
onerous than the existing terms, covenants and restrictions of such
Indebtedness;
(d) unsecured Indebtedness owing to the Company, a Co-Issuer
or another Wholly-Owned Restricted Subsidiary of the Company;
(e) Indebtedness of a Restricted Subsidiary outstanding at the
date of its acquisition, provided that (i) such Indebtedness shall not
have been incurred solely in contemplation of such Subsidiary becoming a
Restricted Subsidiary and (ii) immediately after giving effect thereto, no
Default or Event of Default shall exist; and
(f) Indebtedness which would not otherwise be permitted by
clauses (a) through (e) above, provided that the sum of (i) such other
Indebtedness plus (ii) the aggregate unpaid principal amount of
Indebtedness of the Co-Issuers, the Company and its Restricted
Subsidiaries secured by Liens not permitted by clauses (a) through (j) of
Section 10.3 (the sum of the foregoing clauses (i) and (ii) being referred
to herein as "PRIORITY DEBT"), does not exceed 20% of Consolidated Net
Worth.
SECTION 10.6. SALE OF ASSETS. Other than in the ordinary course of
business or in connection with a Sale and Leaseback Transaction, no Co-Issuer
will, or will permit the Company or any of its Restricted Subsidiaries to,
directly or indirectly, in a single transaction or a series of transactions,
sell, lease, transfer, abandon or otherwise dispose of or suffer to be sold,
leased, transferred, abandoned or otherwise disposed of (collectively,
"TRANSFER") assets in any fiscal year in excess of 15% of the Consolidated Total
Assets ("SUBSTANTIAL ASSETS") determined as of the end of the immediately
preceding fiscal year or if such Transfer of Substantial Assets in the aggregate
in more than one fiscal year would exceed 25% of Consolidated Total Assets
determined as the average of Consolidated Total Assets determined as of the
fiscal year end of the three fiscal years immediately preceding the date of
determination, unless the proceeds of such Transfer of Substantial Assets are
used within 180 days to (i) acquire productive assets or (ii) reduce
Indebtedness of the Co-Issuers, the Company or its Restricted Subsidiaries which
is not junior in right of payment to the Notes. Notwithstanding the foregoing,
WSS may dispose of its interest in WMS (the "WMS DISPOSITION"), in either a sale
of stock or an exchange of an acquirer's stock for 100% of the issued and
outstanding capital stock of WMS or a sale of substantially all of the assets of
WMS, in which event:
(a) upon the consummation of the WMS Disposition, WMS's
obligation as a Co-Issuer shall be extinguished and the Purchasers will
tender their existing Notes upon the request of WSS in exchange for new
Notes in which WSS will be the sole issuer;
(b) each Purchaser shall, upon request of WSS upon the
consummation of the WMS Disposition, execute a release of WMS from its
obligations under this Agreement, the Other Agreements, the Notes and the
Transaction Documents; and
(c) within 270 days after the consummation of the WMS
Disposition, WSS shall apply the net cash proceeds received from the WMS
Disposition to (i) acquire productive assets or (ii)
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reduce Indebtedness of WMS outstanding on the date of closing of the WMS
Disposition, WSS, the Company or its Restricted Subsidiaries which is not
junior in right of payment to the Notes.
SECTION 10.7. MINIMUM CONSOLIDATED NET WORTH. The Co-Issuers will not
permit Consolidated Net Worth at any time to be less than the sum of (i)
$45,000,000 and (ii) 25% of the Consolidated Net Income earned after November 2,
1997.
SECTION 10.8. MINIMUM FIXED CHARGE COVERAGE. The Co-Issuers will not
permit the ratio, as calculated on the last day of each fiscal quarter for the
period consisting of any four of the immediately preceding five fiscal quarters,
of (i) Consolidated Income Available for Fixed Charges for such period to (ii)
Fixed Charges for such period to be less than 1.75 to 1.00.
SECTION 10.9. LINE OF BUSINESS. The Co-Issuers will not, and will not
permit the Company or any of its Restricted Subsidiaries to, engage in any
business if, as a result, the general nature of the business would be
substantially changed from that described in the Memorandum and businesses
reasonably related thereto.
SECTION 10.10. LOANS TO AND INVESTMENTS IN LICENSEES, UNRESTRICTED
SUBSIDIARIES AND AFFILIATES. The Co-Issuers will not, and will not permit the
Company or any of its Restricted Subsidiaries to, make or commit to make any
advance, loan, extension of credit or capital contribution to or any other
investment in any Licensees, Unrestricted Subsidiaries or Affiliates, except
for:
(a) loans by either Co-Issuer to Licensees, provided that (i)
such loans are secured by such Licensees' accounts receivable, (ii) the
applicable Co-Issuer, has perfected its security interests by Uniform
Commercial Code financing statements filed in the appropriate state and/or
local offices, and (iii) with respect to loans in excess of $500,000 to
any Licensee, all such Uniform Commercial Code financing statements are
assigned to the Collateral Agent for the benefit of the holders of the
Notes and all original instruments evidencing such Licensee loans are
delivered to the Collateral Agent (subject to the Collateral Agent's
obligation on a best efforts basis to return such original instruments in
connection with a collection or enforcement action undertaken by or on
behalf of a Co-Issuer with respect to such instruments), together with
copies of all security agreements executed by each Licensee and all
Uniform Commercial Code financing statements filed by the applicable
Co-Issuer, with respect to the collateral described in such security
agreements; and
(b) loans to and investments in Unrestricted Subsidiaries or
Affiliates in an aggregate amount not exceeding 25% of Consolidated Net
Worth;
SECTION 10.11. DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES.
(a) The Co-Issuers will not designate, or permit the Company to
designate, a Restricted Subsidiary as an Unrestricted Subsidiary unless:
(i) such Subsidiary does not own or hold any Indebtedness,
shares or other securities of the Company, the Co-Issuers or another
Restricted Subsidiary, and
(ii) immediately before and after giving pro forma effect to
such designation no Default or Event of Default shall have occurred and be
continuing.
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(b) The Co-Issuers will not designate, or permit the Company to
designate, any Person as a Restricted Subsidiary unless immediately before and
after giving pro forma effect to such designation no Default or Event of Default
shall have occurred and be continuing.
(c) Forthwith and in any event within ten Business Days after a
designation pursuant to clause (a) or (b) above, the Co-Issuers will furnish
each Purchaser with a certificate of a Senior Financial Officer specifying the
effective date of such designation and setting forth calculations in reasonable
detail demonstrating compliance with the conditions to such designation set
forth in clause (a) or (b), as applicable.
(d) The Co-Issuers will not designate, or permit the Company to
designate, any Guarantor as an Unrestricted Subsidiary.
SECTION 11. EVENTS OF DEFAULT.
An "EVENT OF DEFAULT" shall exist if any of the following conditions or
events shall occur and be continuing:
(a) either Co-Issuer, the Company or any of its Restricted
Subsidiaries fails to make any payment of any principal or Make-Whole
Amount, if any, on any Note when the same becomes due and payable, whether
at maturity or at a date fixed for prepayment or by declaration or
otherwise; or
(b) either Co-Issuer, the Company or any of its Restricted
Subsidiaries fails to make any payment of any interest on any Note for
more than five Business Days after the same becomes due and payable; or
(c) either Co-Issuer defaults in the performance of or
compliance with any term contained in Section 7.1(d) or in Sections 10.1
to 10.11, inclusive; or
(d) either Co-Issuer defaults in the performance of or
compliance with any term contained herein (other than those referred to in
paragraphs (a), (b) and (c) of this Section 11) and such default is not
remedied within 30 days after the earlier of (i) a Responsible Officer
obtaining actual knowledge of such default and (ii) the Co-Issuer
receiving written notice of such default from any holder of a Note (any
such written notice to be identified as a "notice of default" and to refer
specifically to this paragraph (d) of Section 11); or
(e) any representation or warranty made in writing by or on
behalf of either Co-Issuer or by any officer of either Co-Issuer in this
Agreement or in any writing furnished in connection with the transactions
contemplated hereby proves to have been false or incorrect in any Material
respect on the date as of which made; or
(f) (i) either Co-Issuer, the Company or any of its
Restricted Subsidiaries is in default (as principal or as guarantor or
other surety) in the payment of any principal of or premium or make-whole
amount or interest on any Indebtedness that is outstanding in an aggregate
principal amount of the lesser of 10% of Consolidated Net Worth or
$10,000,000 beyond any period of grace provided with respect thereto, or
(ii) either Co-Issuer, the Company or any of its Restricted Subsidiaries
is in default in the performance of or compliance with any term of any
evidence of any
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Indebtedness in an aggregate outstanding principal amount of the lesser of
10% of Consolidated Net Worth or $10,000,000 or of any mortgage, indenture
or other agreement relating thereto or any other condition exists, and as
a consequence of such default or condition such Indebtedness has become,
or has been declared, due and payable before its stated maturity or before
its regularly scheduled dates of payment, or (iii) as a consequence of the
occurrence or continuation of any event or condition (other than the
passage of time or the right of the holder of Indebtedness to convert such
Indebtedness into equity interests), either Co-Issuer, the Company or any
of its Restricted Subsidiaries has become obligated to purchase or repay
Indebtedness before its regular maturity or before its regularly scheduled
dates of payment in an aggregate outstanding principal amount of the
lesser of 10% of Consolidated Net Worth or $10,000,000; or
(g) either Co-Issuer, the Company or any of its Restricted
Subsidiaries (i) is generally not paying, or admits in writing its
inability to pay, its debts as they become due, (ii) files, or consents by
answer or otherwise to the filing against it of, a petition for relief or
reorganization or arrangement or any other petition in bankruptcy, for
liquidation or to take advantage of any bankruptcy, insolvency,
reorganization, moratorium or other similar law of any jurisdiction, (iii)
makes an assignment for the benefit of its creditors, (iv) consents to the
appointment of a custodian, receiver, trustee or other officer with
similar powers with respect to it or with respect to any substantial part
of its property, (v) is adjudicated as insolvent or to be liquidated, or
(vi) takes corporate action for the purpose of any of the foregoing; or
(h) a court or governmental authority of competent
jurisdiction enters an order appointing, without consent by either
Co-Issuer, the Company or any of its Restricted Subsidiaries, a custodian,
receiver, trustee or other officer with similar powers with respect to it
or with respect to any substantial part of its property, or constituting
an order for relief or approving a petition for relief or reorganization
or any other petition in bankruptcy or for liquidation or to take
advantage of any bankruptcy or insolvency law of any jurisdiction, or
ordering the dissolution, winding-up or liquidation of either Co-Issuer,
the Company or any of its Restricted Subsidiaries, or any such petition
shall be filed against either Co-Issuer, the Company or any of its
Restricted Subsidiaries and such petition shall not be dismissed within 60
days; or
(i) a final judgment or judgments for the payment of money
aggregating in excess of $5,000,000 are rendered against one or more of
either Co-Issuer, the Company or any of its Restricted Subsidiaries and
which judgments are not, within 60 days after entry thereof, bonded,
discharged or stayed pending appeal, or are not discharged within 60 days
after the expiration of such stay; or
(j) if (i) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a
waiver of such standards or extension of any amortization period is sought
or granted under section 412 of the Code, (ii) a notice of intent to
terminate any Plan shall have been or is reasonably expected to be filed
with the PBGC or the PBGC shall have instituted proceedings under ERISA
section 4042 to terminate or appoint a trustee to administer any Plan or
the PBGC shall have notified either Co-Issuer or any ERISA Affiliate that
a Plan may become a subject of any such proceedings, (iii) the aggregate
"amount of unfunded benefit liabilities" (within the meaning of section
4001(a)(18) of ERISA) under all Plans, determined in accordance with Title
IV of ERISA, shall exceed $10,000,000, (iv) either Co-Issuer or any ERISA
Affiliate shall have incurred or is reasonably expected to incur any
liability pursuant to Title I or IV of ERISA or
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the penalty or excise tax provisions of the Code relating to employee
benefit plans, (v) the Company or any ERISA Affiliate withdraws from any
Multiemployer Plan, or (vi) either Co-Issuer, the Company or any of its
Restricted Subsidiaries establishes or amends any employee welfare benefit
plan that provides post-employment welfare benefits in a manner that would
increase its liability thereunder; and any such event or events described
in clauses (i) through (vi) above, either individually or together with
any other such event or events, could reasonably be expected to have a
Material Adverse Effect.
As used in Section 11(j), the terms "employee benefit plan" and "employee
welfare benefit plan" shall have the respective meanings assigned to such terms
in Section 3 of ERISA.
SECTION 12. REMEDIES ON DEFAULT, ETC.
SECTION 12.1. ACCELERATION.
(a) If an Event of Default described in paragraph (g) or (h)
of Section 11 (other than an Event of Default described in clause (i) of
paragraph (g) or described in clause (vi) of paragraph (g) by virtue of
the fact that such clause encompasses clause (i) of paragraph (g)) has
occurred, all the Notes then outstanding shall automatically become
immediately due and payable.
(b) If any other Event of Default has occurred and is
continuing, any holder or holders of more than 34% in principal amount of
the Notes at the time outstanding may at any time at its or their option,
by notice or notices to the Company, declare all the Notes then
outstanding to be immediately due and payable.
(c) If any Event of Default described in paragraph (a) or (b)
of Section 11 has occurred and is continuing, any holder or holders of
Notes at the time outstanding affected by such Event of Default may at any
time, at its or their option, by notice or notices to the Company, declare
all the Notes held by it or them to be immediately due and payable.
Upon any Notes becoming due and payable under this Section 12.1,
whether automatically or by declaration, such Notes will forthwith mature
and the entire unpaid principal amount of such Notes, plus (x) all accrued
and unpaid interest thereon and (y) the Make-Whole Amount determined in
respect of such principal amount (to the full extent permitted by
applicable law), shall all be immediately due and payable, in each and
every case without presentment, demand, protest or further notice, all of
which are hereby waived. Each Co-Issuer acknowledges, and the parties
hereto agree, that each holder of a Note has the right to maintain its
investment in the Notes free from repayment by the Co-Issuers (except as
herein specifically provided for), and that the provision for payment of a
Make-Whole Amount by the Co-Issuers in the event that the Notes are
prepaid or are accelerated as a result of an Event of Default, is intended
to provide compensation for the deprivation of such right under such
circumstances.
SECTION 12.2. OTHER REMEDIES. If any Default or Event of Default has
occurred and is continuing, and irrespective of whether any Notes have become or
have been declared immediately due and payable under Section 12.1, the holder of
any Note at the time outstanding may proceed to protect and enforce the rights
of such holder by an action at law, suit in equity or other appropriate
proceeding, whether for the specific performance of any agreement contained
herein or in any Note, or for an injunction against a
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violation of any of the terms hereof or thereof, or in aid of the exercise of
any power granted hereby or thereby or by law or otherwise.
SECTION 12.3. RESCISSION. At any time after any Notes have been
declared due and payable pursuant to clause (b) or (c) of Section 12.1, the
holders of not less than 67% in principal amount of the Notes then outstanding,
by written notice to the Co-Issuers, may rescind and annul any such declaration
and its consequences if (a) the Co-Issuers have paid all overdue interest on the
Notes, all principal of and Make-Whole Amount, if any, on any Notes that are due
and payable and are unpaid other than by reason of such declaration, and all
interest on such overdue principal and Make-Whole Amount, if any, and (to the
extent permitted by applicable law) any overdue interest in respect of the
Notes, at the Default Rate, (b) all Events of Default and Defaults, other than
non-payment of amounts that have become due solely by reason of such
declaration, have been cured or have been waived pursuant to Section 17, and (c)
no judgment or decree has been entered for the payment of any monies due
pursuant hereto or to the Notes. No rescission and annulment under this Section
12.3 will extend to or affect any subsequent Event of Default or Default or
impair any right consequent thereon.
SECTION 12.4. NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC. No
course of dealing and no delay on the part of any holder of any Note in
exercising any right, power or remedy shall operate as a waiver thereof or
otherwise prejudice such holder's rights, powers or remedies. No right, power
or remedy conferred by this Agreement or by any Note upon any holder thereof
shall be exclusive of any other right, power or remedy referred to herein or
therein or now or hereafter available at law, in equity, by statute or
otherwise. Without limiting the obligations of the Co-Issuers under Section 15,
the Co-Issuers will pay to the holder of each Note on demand such further amount
as shall be sufficient to cover all costs and expenses of such holder incurred
in any enforcement or collection under this Section 12, including, without
limitation, reasonable attorneys' fees, expenses and disbursements.
SECTION 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
SECTION 13.1. REGISTRATION OF NOTES. The Co-Issuers shall cause the
Company to keep at its principal executive office a register for the
registration and registration of transfers of Notes. The name and address of
each holder of one or more Notes, each transfer thereof and the name and address
of each transferee of one or more Notes shall be registered in such register.
Prior to due presentment for registration of transfer, the Person in whose name
any Note shall be registered shall be deemed and treated as the owner and holder
thereof for all purposes hereof, and the Co-Issuers shall not be affected, by
any notice or knowledge to the contrary. The Co-Issuers shall give any holder
of a Note that is an Institutional Investor promptly upon request therefor, a
complete and correct copy of the names and addresses of all registered holders
of Notes.
SECTION 13.2. TRANSFER AND EXCHANGE OF NOTES. Upon surrender of any
Note at the principal executive office of the Company for registration of
transfer or exchange (and in the case of a surrender for registration of
transfer, duly endorsed or accompanied by a written instrument of transfer duly
executed by the registered holder of such Note or his attorney duly authorized
in writing and accompanied by the address for notices of each transferee of such
Note or part thereof), the Co-Issuers shall execute and deliver, at the
Co-Issuers' expense (except as provided below), one or more new Notes (as
requested by the holder thereof) in exchange therefor, in an aggregate principal
amount equal to the unpaid principal amount of the surrendered Note. Each such
new Note shall be payable to such Person as such holder may request and shall be
substantially in the form of Exhibit 1. Each such new Note shall be dated and
bear interest from the date
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to which interest shall have been paid on the surrendered Note or dated the date
of the surrendered Note if no interest shall have been paid thereon. The
Co-Issuers may require payment of a sum sufficient to cover any stamp tax or
governmental charge imposed in respect of any such transfer of Notes. Notes
shall not be transferred in denominations of less than $100,000, PROVIDED that
if necessary to enable the registration of transfer by a holder of its entire
holding of Notes, one Note may be in a denomination of less than $100,000. Any
transferee, by its acceptance of a Note registered in its name (or the name of
its nominee), shall be deemed to have made the representation set forth in
Section 6.2.
SECTION 13.3. REPLACEMENT OF NOTES. Upon receipt by the Co-Issuers of
evidence reasonably satisfactory to them of the ownership of and the loss,
theft, destruction or mutilation of any Note (which evidence shall be, in the
case of an Institutional Investor, notice from such Institutional Investor of
such ownership and such loss, theft, destruction or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (PROVIDED that if the holder of such Note
is, or is a nominee for, an original Purchaser or another holder of a Note
with a minimum net worth of at least $10,000,000, such Person's own
unsecured agreement of indemnity shall be deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof, the Co-Issuers at their own expense shall execute and deliver, in
lieu thereof, a new Note, dated and bearing interest from the date to
which interest shall have been paid on such lost, stolen, destroyed or
mutilated Note or dated the date of such lost, stolen, destroyed or
mutilated Note if no interest shall have been paid thereon.
SECTION 14. PAYMENTS ON NOTES.
SECTION 14.1. PLACE OF PAYMENT. Subject to Section 14.2, payments of
principal, Make-Whole Amount, if any, and interest becoming due and payable on
the Notes shall be made in New York City at the principal office of Bank of
America National Trust and Savings Association in such jurisdiction. The
Co-Issuers may at any time, by notice to each holder of a Note, change the place
of payment of the Notes so long as such place of payment shall be either the
principal office of the Company in such jurisdiction or the principal office of
a bank or trust company in such jurisdiction.
SECTION 14.2. HOME OFFICE PAYMENT. So long as you or your nominee shall
be the holder of any Note, and notwithstanding anything contained in Section
14.1 or in such Note to the contrary, the Co-Issuers will pay all sums becoming
due on such Note for principal, Make-Whole Amount, if any, and interest by the
method and at the address specified for such purpose below your name in Schedule
A, or by such other method or at such other address as you shall have from time
to time specified to the Co-Issuers in writing for such purpose, without the
presentation or surrender of such Note or the making of any notation thereon,
except that upon written request of the Co-Issuers made concurrently with or
reasonably promptly after payment or prepayment in full of any Note, you shall
surrender such Note for cancellation, reasonably promptly after any such
request, to the Company at its principal executive office or at the place of
payment most recently designated by the Co-Issuers pursuant to Section 14.1.
Prior to any sale or other disposition of any Note held by you or your nominee
you will, at your election, either endorse thereon the amount of principal paid
thereon and the last date to which interest has been paid thereon or surrender
such Note to the Co-Issuers in exchange for a new Note or Notes pursuant to
Section 13.2. The Co-Issuers will afford the benefits of this Section 14.2 to
any Institutional Investor that is the direct or indirect transferee of any Note
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purchased by you under this Agreement and that has made the same agreement
relating to such Note as you have made in this Section 14.2.
SECTION 15. EXPENSES, ETC.
SECTION 15.1. TRANSACTION EXPENSES. Whether or not the transactions
contemplated hereby are consummated, the Co-Issuers will pay all costs and
expenses (including reasonable attorneys' fees of a special counsel and, if
reasonably required, local or other counsel) incurred by you and each Other
Purchaser or holder of a Note in connection with such transactions and in
connection with any amendments, waivers or consents under or in respect of this
Agreement or the Notes (whether or not such amendment, waiver or consent becomes
effective), including, without limitation: (a) the costs and expenses incurred
in enforcing or defending (or determining whether or how to enforce or defend)
any rights under this Agreement or the Notes or in responding to any subpoena or
other legal process or informal investigative demand issued in connection with
this Agreement or the Notes, or by reason of being a holder of any Note, and (b)
the costs and expenses, including financial advisors' fees, incurred in
connection with the insolvency or bankruptcy of the Company, either Co-Issuer or
any or their Subsidiaries or in connection with any work-out or restructuring of
the transactions contemplated hereby and by the Notes. The Co-Issuers will pay,
and will save you and each other holder of a Note harmless from, all claims in
respect of any fees, costs or expenses, if any, of brokers and finders (other
than those retained by you).
SECTION 15.2. SURVIVAL. The obligations of the Co-Issuers under this
Section 15 will survive the payment or transfer of any Note, the enforcement,
amendment or waiver of any provision of this Agreement or the Notes, and the
termination of this Agreement.
SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein shall survive the
execution and delivery of this Agreement and the Notes, the purchase or transfer
by you of any Note or portion thereof or interest therein and the payment of any
Note, and may be relied upon by any subsequent holder of a Note, regardless of
any investigation made at any time by or on behalf of you or any other holder of
a Note. All statements contained in any certificate or other instrument
delivered by or on behalf of the Co-Issuers pursuant to this Agreement shall be
deemed representations and warranties of the Co-Issuers under this Agreement.
Subject to the preceding sentence, this Agreement and the Notes embody the
entire agreement and understanding between you and the Co-Issuers and supersede
all prior agreements and understandings relating to the subject matter hereof.
SECTION 17. AMENDMENT AND WAIVER.
SECTION 17.1. REQUIREMENTS. This Agreement and the Notes may be
amended, and the observance of any term hereof or of the Notes may be waived
(either retroactively or prospectively), with (and only with) the written
consent of the Co-Issuers and the Required Holders, except that (a) no amendment
or waiver of any of the provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or
any defined term (as it is used therein), will be effective as to you unless
consented to by you in writing, and (b) no such amendment or waiver may, without
the written consent of the holder of each Note at the time outstanding affected
thereby, (i) subject to the provisions of Section 12 relating to acceleration or
rescission, change the amount or time of any prepayment or payment of principal
of, or reduce the rate or change the time of payment or method of computation of
interest or of the Make-Whole Amount on, the Notes, (ii) change the percentage
of the
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principal amount of the Notes the holders of which are required to consent to
any such amendment or waiver, or (iii) amend any of Sections 8, 11(a), 11(b),
12, 17 or 20.
SECTION 17.2. SOLICITATION OF HOLDERS OF NOTES.
(a) SOLICITATION. The Co-Issuers will provide each holder of the
Notes (irrespective of the amount of Notes then owned by it) with sufficient
information, sufficiently far in advance of the date a decision is required, to
enable such holder to make an informed and considered decision with respect to
any proposed amendment, waiver or consent in respect of any of the provisions
hereof or of the Notes. The Co-Issuers will deliver executed or true and
correct copies of each amendment, waiver or consent effected pursuant to the
provisions of this Section 17 to each holder of outstanding Notes promptly
following the date on which it is executed and delivered by, or receives the
consent or approval of, the requisite holders of Notes.
(b) PAYMENT. The Co-Issuers will not directly or indirectly pay or
cause to be paid any remuneration, whether by way of supplemental or additional
interest, fee or otherwise, or grant any security, to any holder of Notes as
consideration for or as an inducement to the entering into by any holder of
Notes or any waiver or amendment of any of the terms and provisions hereof
unless such remuneration is concurrently paid, or security is concurrently
granted, on the same terms, ratably to each holder of Notes then outstanding
even if such holder did not consent to such waiver or amendment.
SECTION 17.3. BINDING EFFECT, ETC. Any amendment or waiver consented to
as provided in this Section 17 applies equally to all holders of Notes and is
binding upon them and upon each future holder of any Note and upon the
Co-Issuers without regard to whether such Note has been marked to indicate such
amendment or waiver. No such amendment or waiver will extend to or affect any
obligation, covenant, agreement, Default or Event of Default not expressly
amended or waived or impair any right consequent thereon. No course of dealing
between the Co-Issuers and the holder of any Note nor any delay in exercising
any rights hereunder or under any Note shall operate as a waiver of any rights
of any holder of such Note. As used herein, the term "THIS AGREEMENT" and
references thereto shall mean this Agreement as it may from time to time be
amended or supplemented.
SECTION 17.4. NOTES HELD BY CO-ISSUERS, ETC. Solely for the purpose of
determining whether the holders of the requisite percentage of the aggregate
principal amount of Notes then outstanding approved or consented to any
amendment, waiver or consent to be given under this Agreement or the Notes, or
have directed the taking of any action provided herein or in the Notes to be
taken upon the direction of the holders of a specified percentage of the
aggregate principal amount of Notes then outstanding, Notes directly or
indirectly owned by the Co-Issuers or any of its Affiliates shall be deemed not
to be outstanding.
SECTION 18. NOTICES.
All notices and communications provided for hereunder shall be in writing
and sent (a) by telecopy if the sender on the same day sends a confirming copy
of such notice by a recognized overnight delivery service (charges prepaid), or
(b) by registered or certified mail with return receipt requested (postage
prepaid), or (c) by a recognized overnight delivery service (with charges
prepaid). Any such notice must be sent:
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(i) if to you or your nominee, to you or it at the address
specified for such communications in Schedule A, or at such other address
as you or it shall have specified to the Company in writing,
(ii) if to any other holder of any Note, to such holder at such
address as such other holder shall have specified to the Co-Issuers in
writing, or
(iii) if to the Co-Issuers, to the Company at its address set
forth at the beginning hereof to the attention of the Treasurer with a
copy to the Legal Department, or at such other address as the Company
shall have specified to the holder of each Note in writing.
Notices under this Section 18 will be deemed given only when actually received.
SECTION 19. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by you at the Closing (except the Notes
themselves), and (c) financial statements, certificates and other information
previously or hereafter furnished to you, may be reproduced by you by any
photographic, photostatic, microfilm, microcard, miniature photographic or other
similar process and you may destroy any original document so reproduced. The
Co-Issuers agree and stipulate that, to the extent permitted by applicable law,
any such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by you in the regular
course of business) and any enlargement, facsimile or further reproduction of
such reproduction shall likewise be admissible in evidence. This Section 19
shall not prohibit the Co-Issuers or any other holder of Notes from contesting
any such reproduction to the same extent that it could contest the original, or
from introducing evidence to demonstrate the inaccuracy of any such
reproduction.
SECTION 20. CONFIDENTIAL INFORMATION.
For the purposes of this Section 20, "CONFIDENTIAL INFORMATION" means
information delivered to you by or on behalf of the Company, either Co-Issuer or
any of their Subsidiaries in connection with the transactions contemplated by or
otherwise pursuant to this Agreement that is proprietary in nature and that was
clearly marked or labeled or otherwise adequately identified when received by
you as being confidential information of the Company, either Co-Issuer or such
Subsidiaries, PROVIDED that such term does not include information that (a) was
publicly known or otherwise known to you prior to the time of such disclosure,
(b) subsequently becomes publicly known through no act or omission by you or any
person acting on your behalf, (c) otherwise becomes known to you other than
through disclosure by the Company, either Co-Issuer or any of their Subsidiaries
or (d) constitutes financial statements delivered to you under Section 7.1 that
are otherwise publicly available. You will maintain the confidentiality of such
Confidential Information in accordance with procedures adopted by you in good
faith to protect confidential information of third parties delivered to you,
PROVIDED that you may deliver or disclose Confidential Information to (i) your
directors, officers, employees, agents, attorneys and affiliates (to the extent
such disclosure reasonably relates to the administration of the investment
represented by your Notes), (ii) your financial advisors and other professional
advisors who agree to hold confidential the Confidential Information
substantially in accordance with the terms of this Section 20, (iii) any other
holder of any Note, (iv) any Institutional Investor to which you sell or offer
to sell such Note or any part thereof or any participation therein (if such
Person has agreed
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in writing prior to its receipt of such Confidential Information to be bound by
the provisions of this Section 20), (v) any Person from which you offer to
purchase any security of the Company (if such Person has agreed in writing prior
to its receipt of such Confidential Information to be bound by the provisions of
this Section 20), (vi) any federal or state regulatory authority having
jurisdiction over you, (vii) the National Association of Insurance Commissioners
or any similar organization, or any nationally recognized rating agency that
requires access to information about your investment portfolio or (viii) any
other Person to which such delivery or disclosure may be necessary or
appropriate (w) to effect compliance with any law, rule, regulation or order
applicable to you, (x) in response to any subpoena or other legal process, (y)
in connection with any litigation to which you are a party or (z) if an Event of
Default has occurred and is continuing, to the extent you may reasonably
determine such delivery and disclosure to be necessary or appropriate in the
enforcement or for the protection of the rights and remedies under your Notes
and this Agreement. Each holder of a Note, by its acceptance of a Note, will be
deemed to have agreed to be bound by and to be entitled to the benefits of this
Section 20 as though it were a party to this Agreement. On reasonable request
by the Company in connection with the delivery to any holder of a Note of
information required to be delivered to such holder under this Agreement or
requested by such holder (other than a holder that is a party to this Agreement
or its nominee), such holder will enter into an agreement with the Company
embodying the provisions of this Section 20.
SECTION 21. SUBSTITUTION OF PURCHASER.
You shall have the right to substitute any one of your Affiliates as the
purchaser of the Notes that you have agreed to purchase hereunder, by written
notice to the Co-Issuers, which notice shall be signed by both you and such
Affiliate, shall contain such Affiliate's agreement to be bound by this
Agreement and shall contain a confirmation by such Affiliate of the accuracy
with respect to it of the representations set forth in Section 6. Upon receipt
of such notice, wherever the word "you" is used in this Agreement (other than in
this Section 21), such word shall be deemed to refer to such Affiliate in lieu
of you. In the event that such Affiliate is so substituted as a purchaser
hereunder and such Affiliate thereafter transfers to you all of the Notes then
held by such Affiliate, upon receipt by the Co-Issuers of notice of such
transfer, wherever the word "you" is used in this Agreement (other than in this
Section 21), such word shall no longer be deemed to refer to such Affiliate, but
shall refer to you, and you shall have all the rights of an original holder of
the Notes under this Agreement.
SECTION 22. MISCELLANEOUS.
SECTION 22.1. SUCCESSORS AND ASSIGNS. All covenants and other
agreements contained in this Agreement by or on behalf of any of the parties
hereto bind and inure to the benefit of their respective successors and assigns
(including, without limitation, any subsequent holder of a Note) whether so
expressed or not.
SECTION 22.2. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this
Agreement or the Notes to the contrary notwithstanding, any payment of principal
of or Make-Whole Amount or interest on any Note that is due on a date other than
a Business Day shall be made on the next succeeding Business Day without
including the additional days elapsed in the computation of the interest payable
on such next succeeding Business Day.
SECTION 22.3. SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or
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unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall (to the full
extent permitted by law) not invalidate or render unenforceable such provision
in any other jurisdiction.
SECTION 22.4. CONSTRUCTION. Each covenant contained herein shall be
construed (absent express provision to the contrary) as being independent of
each other covenant contained herein, so that compliance with any one covenant
shall not (absent such an express contrary provision) be deemed to excuse
compliance with any other covenant. Where any provision herein refers to action
to be taken by any Person, or which such Person is prohibited from taking, such
provision shall be applicable whether such action is taken directly or
indirectly by such Person.
SECTION 22.5. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies hereof, each signed by less than all, but together signed by
all, of the parties hereto.
SECTION 22.6. GOVERNING LAW. This Agreement shall be construed and
enforced in accordance with, and the rights of the parties shall be governed by,
the law of the State of New York excluding choice-of-law principles of the law
of such State that would require the application of the laws of a jurisdiction
other than such State.
* * * * *
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If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterpart of this Agreement and return it to the
Co-Issuers, whereupon the foregoing shall become a binding agreement between you
and the Co-Issuers.
Very truly yours,
WESTERN STAFF SERVICES (USA), INC.
By /s/ Paul A. Norberg
-------------------------------------------
Paul A. Norberg
Executive Vice President and
Chief Financial Officer
WESTERN MEDICAL SERVICES, INC.
By /s/ Michael J. Nicholson
-------------------------------------------
Michael J. Nicholson
President and Chief Operating Officer
The foregoing is hereby agreed
to as of the date thereof.
PPM AMERICA, INC., AS ATTORNEY IN FACT,
ON BEHALF OF JACKSON NATIONAL LIFE
INSURANCE COMPANY
By /s/ James D. Young
----------------------------------------
James D. Young
Managing Director
<PAGE>
If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterpart of this Agreement and return it to the
Co-Issuers, whereupon the foregoing shall become a binding agreement between you
and the Co-Issuers.
Very truly yours,
WESTERN STAFF SERVICES (USA), INC.
By /s/ Paul A. Norberg
------------------------------------------
Paul A. Norberg
Executive Vice President and
Chief Financial Officer
WESTERN MEDICAL SERVICES, INC.
By /s/ Michael J. Nicholson
------------------------------------------
Michael J. Nicholson
President and Chief Operating Officer
NATIONWIDE LIFE INSURANCE COMPANY
By /s/ James W. Pruden
-------------------------------------------
Name James W. Pruden
--------------------------------------
Title Vice President Municipal Securities
-------------------------------------
<PAGE>
INFORMATION RELATING TO PURCHASERS
PRINCIPAL AMOUNT OF
NAME AND ADDRESS OF PURCHASER NOTES TO BE PURCHASED
JACKSON NATIONAL LIFE INSURANCE COMPANY $17,500,000
5901 Executive Drive
Lansing, Michigan 48909
(1) All payments on or in respect of the Notes to be by bank
wire transfer of Federal or other immediately available
funds (identifying each payment as "Western Staff
Services, 6.77% Senior Secured Notes due May ___, 2008,
PPN 95958#AA6, principal, premium or interest") to:
NORTHERN TRUST CHGO
ABA #0710-0015-2
Credit Account #5186041000 (General ledger
for all clients of Northern Trust)
For Further Credit to: 26-91241/Jackson
National Life Insurance Company
Ref: (Name of Company) PVTPL, date of
payment, principal and interest breakdown
Attention: Oscell Owens/Sharon Stifter
with sufficient information to identify the source and
application of such funds.
(2) All notices and communications, including notices with
respect to payment and written confirmation of each
such payment, and copies of documents, notes and/or
certificates, waivers, amendments, consents and
financial information should be sent to:
PPM America, Inc.
225 West Wacker Drive, Suite 1200
Chicago, Illinois 60606-1228
Attention: Private Placements/James D. Young
Phone: (312) 634-2500
Fax: (312) 634-0054
<PAGE>
PRINCIPAL AMOUNT OF
NAME AND ADDRESS OF PURCHASER NOTES TO BE PURCHASED
Interest and principal payment notices should also
be faxed to:
Oscell Owens, Northern Trust
801 South Canal, Floor CIN
Chicago, Illinois 60607
Phone: (312) 444-5754
Fax: (312) 630-8179
and
Claudia Baron, PPM America
225 West Wacker Drive, Suite 1200
Chicago, Illinois 60606 $12,500,000
Phone: (312) 634-2504
Fax: (312) 634-0054
NATIONWIDE LIFE INSURANCE COMPANY
One Nationwide Plaza
Columbus, Ohio 43215-2220
(1) All payments by wire transfer of immediately available
funds to:
The Bank of New York
ABA #021-000-018
BNF: IOC566
Attention: P&I Department
PIN # __________
Each such wire transfer shall set forth the name of the
Company, a reference to "6.77% Senior Secured Notes
due May ___, 2008, PPN #95958#AA6," and the due date
and application (as among principal, interest and
Make-Whole Amount) of the payment being made
SCHEDULE A
(to Note Purchase Agreement)
<PAGE>
PRINCIPAL AMOUNT OF
NAME AND ADDRESS OF PURCHASER NOTES TO BE PURCHASED
(2) All notices of payments and written confirmation
of such wire transfers:
Nationwide Life Insurance Company
c/o The Bank of New York
P.O. Box 19266
Attention: P&I Department
Newark, New Jersey 07195
With a copy to:
Nationwide Life Insurance Company
Attention: Investment Accounting
One Nationwide Plaza (1-32-05)
Columbus, Ohio 43215-2220
(3) All other communications:
Nationwide Life Insurance Company
One Nationwide Plaza (1-33-07)
Columbus, Ohio 43215-2220
Attention: Corporate Fixed-Income Securities
SCHEDULE A
(to Note Purchase Agreement)
<PAGE>
DEFINED TERMS
As used herein, the following terms have the respective meanings set forth
below or set forth in the Section hereof following such term:
"AFFILIATE" means, at any time, and with respect to any Person, (a) any
other Person that at such time directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common Control with,
such first Person, and (b) any Person beneficially owning or holding, directly
or indirectly, 10% or more of any class of voting or equity interests of the
Company or any Subsidiary or any corporation of which the Company and its
Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly,
10% or more of any class of voting or equity interests. As used in this
definition, "Control" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
Unless the context otherwise clearly requires, any reference to an "AFFILIATE"
is a reference to an Affiliate of the Company.
"BUSINESS DAY" means (a) for the purposes of Section 8.6 only, any day
other than a Saturday, a Sunday or a day on which commercial banks in New York
City are required or authorized to be closed, and (b) for the purposes of any
other provision of this Agreement, any day other than a Saturday, a Sunday or a
day on which commercial banks in New York City or Los Angeles, California are
required or authorized to be closed.
"CAPITAL LEASE" means, at any time, a lease with respect to which the
lessee is required concurrently to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.
"CLOSING" is defined in Section 3.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations promulgated thereunder from time to time.
"COLLATERAL AGENT" is defined in Section 1.
"COMPANY" is defined in Section 1.
"COMPANY GUARANTY" is defined in Section 1.
"CONFIDENTIAL INFORMATION" is defined in Section 20.
"CONSOLIDATED INCOME AVAILABLE FOR FIXED CHARGES" for any period shall mean
the sum of (i) Consolidated Net Income for such period, (ii) income tax expense
of the Co-Issuers, the Company and its Restricted Subsidiaries for such period,
as defined according to GAAP, and (iii) Fixed Charges for such period.
"CONSOLIDATED NET INCOME" shall mean for any period consolidated net income
(or loss) of the Co-Issuers, the Company and its Restricted Subsidiaries, as
determined in accordance with GAAP, after
SCHEDULE B
(to Note Purchase Agreement)
<PAGE>
excluding the sum of (i) net earnings (or losses) of any Person accrued prior to
the date it becomes a Restricted Subsidiary or is merged with or consolidated
into the Co-Issuers, the Company or any Restricted Subsidiary; (ii) the net
earnings (or losses) of any Person (other than a Restricted Subsidiary) in which
the Co-Issuers, the Company or a Restricted Subsidiary has an ownership interest
that has not been received in the form of cash; (iii) the undistributed earnings
of any Restricted Subsidiary which is unavailable for payment for any reason;
(iv) any reversal of allowances for possible losses in excess of actual
recovery, except to the extent that such provision shall have been taken against
income during the applicable period; (v) any gain on the sale or disposition of
Investments or fixed or capital assets, including any tax effect; (vi) any gains
resulting from any write-up of assets; (vii) any net gain from the proceeds of
any life insurance policy; (viii) any gain arising from the acquisition of any
Securities of the Company or Restricted Subsidiary; (ix) any extraordinary,
unusual or non-recurring gain or loss (net of any tax effect); (x) any deferred
or other credit representing the excess of the equity in any Restricted
Subsidiary over the cost of the investment at the acquisition date; (xi) in the
case of a successor to the Company by consolidation or merger, any earnings of
the successor corporation prior to such consolidation or merger; and (xii) any
income not freely convertible into U.S. Dollars.
"CONSOLIDATED NET WORTH" means, as of any date, the remainder of (i)
Consolidated Total Assets minus (ii) Consolidated Total Liabilities.
"CONSOLIDATED TOTAL ASSETS" means, as of any date of determination, all
amounts which would, in accordance with GAAP, be included under total assets on
a consolidated balance sheet of the Co-Issuers, the Company and its Restricted
Subsidiaries.
"CONSOLIDATED TOTAL LIABILITIES" means, as of any date of determination,
all amounts which would, in accordance with GAAP, be included under total
liabilities on a consolidated balance sheet of the Co-Issuers, the Company and
its Restricted Subsidiaries.
"CREDIT FACILITY BANKS" means the banks party to the Existing Bank Credit
Facility.
"DEFAULT" means an event or condition the occurrence or existence of which
would, with the lapse of time or the giving of notice or both, become an Event
of Default.
"DEFAULT RATE" means that rate of interest that is the greater of (i) 2.0%
per annum above the rate of interest stated in clause (a) of the first paragraph
of the Notes or (ii) 2.0% over the rate of interest publicly announced by Bank
of America National Trust and Savings Association in Los Angeles, California as
its "base" or "prime" rate.
"ENVIRONMENTAL LAWS" means any and all Federal, state, local, and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or governmental
restrictions relating to pollution and the protection of the environment or the
release of any materials into the environment, including but not limited to
those related to hazardous substances or wastes, air emissions and discharges to
waste or public systems.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations promulgated thereunder
from time to time in effect.
B-2
<PAGE>
"ERISA AFFILIATE" means any trade or business (whether or not incorporated)
that is treated as a single employer together with the Company under section 414
of the Code.
"EVENT OF DEFAULT" is defined in Section 11.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXISTING BANK CREDIT FACILITY" means the Credit Agreement dated as of
March 4, 1998 among the Co-Issuers, the banks party thereto and Bank of America
National Trust and Savings Association, as Agent and issuing bank, as amended,
modified, supplemented or restated from time to time.
"FIXED CHARGES" for any period shall mean the sum of (i) Interest Expense
for such period and (ii) operating lease expense of the Co-Issuers, the Company
and its Restricted Subsidiaries for such period.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States of America.
"GOVERNMENTAL AUTHORITY" means
(a) the government of
(i) the United States of America or any State or other
political subdivision thereof, or
(ii) any jurisdiction in which the Company or any Subsidiary
conducts all or any part of its business, or which asserts
jurisdiction over any properties of the Company or any Subsidiary, or
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
"GUARANTIES" is defined in Section 1.
"GUARANTORS" means, collectively, the Company, Western Medical Services
(New York), Inc., a New York corporation, Western Staff Services (Guam), Inc., a
Kansas corporation, Western Technical Services, Inc., a California corporation,
Mediaworld International, a California corporation, Best Temporaries, Inc., a
District of Columbia corporation, Best Temporaries Federal Systems, Inc., a
District of Columbia corporation, Alternative Billing Services, Inc., a
California corporation, and any other Person that may, after the date hereof,
execute a Subsidiary Guaranty.
"GUARANTOR SECURITY AGREEMENT" means the Security Agreement dated as of the
date hereof among the Guarantors and the Collateral Agent.
"GUARANTY" means, with respect to any Person, any obligation (except the
endorsement in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing or in effect guaranteeing any
indebtedness, dividend or other obligation of any other Person in any manner,
B-3
<PAGE>
whether directly or indirectly, including (without limitation) obligations
incurred through an agreement, contingent or otherwise, by such Person:
(a) to purchase such indebtedness or obligation or any property
constituting security therefor;
(b) to advance or supply funds (i) for the purchase or payment of
such indebtedness or obligation, or (ii) to maintain any working capital or
other balance sheet condition or any income statement condition of any
other Person or otherwise to advance or make available funds for the
purchase or payment of such indebtedness or obligation;
(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such indebtedness or
obligation of the ability of any other Person to make payment of the
indebtedness or obligation; or
(d) otherwise to assure the owner of such indebtedness or obligation
against loss in respect thereof.
In any computation of the indebtedness or other liabilities of the obligor under
any Guaranty, the indebtedness or other obligations that are the subject of such
Guaranty shall be assumed to be direct obligations of such obligor.
"HAZARDOUS MATERIAL" means any and all pollutants, toxic or hazardous
wastes or any other substances that might pose a hazard to health or safety, the
removal of which may be required or the generation, manufacture, refining,
production, processing, treatment, storage, handling, transportation, transfer,
use, disposal, release, discharge, spillage, seepage, or filtration of which is
or shall be restricted, prohibited or penalized by any applicable law
(including, without limitation, asbestos, urea formaldehyde foam insulation and
polychlorinated biphenyls).
"HOLDER" means, with respect to any Note, the Person in whose name such
Note is registered in the register maintained by the Company pursuant to Section
13.1.
"INDEBTEDNESS" with respect to any Person means, at any time, without
duplication,
(a) its liabilities for borrowed money and its redemption obligations
in respect of mandatorily redeemable Preferred Stock;
(b) its liabilities for the deferred purchase price of property
acquired by such Person (excluding accounts payable arising in the ordinary
course of business but including all liabilities created or arising under
any conditional sale or other title retention agreement with respect to any
such property);
(c) all liabilities appearing on its balance sheet in accordance with
GAAP in respect of Capital Leases;
(d) all liabilities for borrowed money secured by any Lien with
respect to any property owned by such Person (whether or not it has assumed
or otherwise become liable for such liabilities);
B-4
<PAGE>
(e) all its liabilities in respect of letters of credit or
instruments serving a similar function issued or accepted for its account
by banks and other financial institutions (whether or not representing
obligations for borrowed money) to the extent that any amounts have been
drawn by the beneficiary thereunder;
(f) Swaps of such Person; and
(g) any Guaranty of such Person with respect to liabilities of a type
described in any of clauses (a) through (f) hereof.
Indebtedness of any Person shall include all obligations of such Person of the
character described in clauses (a) through (g) to the extent such Person remains
legally liable in respect thereof notwithstanding that any such obligation is
deemed to be extinguished under GAAP.
"INSTITUTIONAL INVESTOR" means (a) any original purchaser of a Note, (b)
any holder of a Note holding more than 5.0% of the aggregate principal amount of
the Notes then outstanding, and (c) any bank, trust company, savings and loan
association or other financial institution, any pension plan, any investment
company, any insurance company, any broker or dealer, or any other similar
financial institution or entity, regardless of legal form.
"INTERCREDITOR AGREEMENT" is defined in Section 1.
"INTEREST EXPENSE" for any period shall mean interest expense of the
Co-Issuers, the Company and its Restricted Subsidiaries for such period, as
defined according to GAAP.
"JOINT VENTURE" means a single-purpose corporation, partnership, joint
venture or other similar legal arrangement (whether created pursuant to contract
or conducted through a separate legal entity) now or hereafter formed by a
Co-Issuer or any Guarantor with another Person in order to conduct a common
venture or enterprise with such Person.
"LICENSEE" means a licensee of a Co-Issuer under a license agreement.
"LIEN" means, with respect to any Person, any mortgage, lien, pledge,
charge, security interest or other encumbrance, or any interest or title of any
vendor, lessor, lender or other secured party to or of such Person under any
conditional sale or other title retention agreement or Capital Lease, upon or
with respect to any property or asset of such Person (including in the case of
stock, stockholder agreements, voting trust agreements and all similar
arrangements).
"MAKE-WHOLE AMOUNT" is defined in Section 8.6.
"MATERIAL" means material in relation to the business, operations, affairs,
financial condition, assets, properties, or prospects of the Company and its
Subsidiaries taken as a whole.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
business, operations, affairs, financial condition, assets or properties of the
Company and its Subsidiaries taken as a whole, or (b) the ability of either
Co-Issuer to perform its obligations under this Agreement and the Notes, or (c)
the validity or enforceability of this Agreement or the Notes.
B-5
<PAGE>
"MATERIAL SUBSIDIARY" means, at any time, any Subsidiary having at such
time either (i) total net income for the preceding four (4) fiscal quarter
period in excess of ten percent (10%) of Consolidated Net Income for the
comparable period or (ii) total assets, as of the last day of the preceding
fiscal quarter, having a net book value in excess of ten percent (10%) of the
Consolidated Total Assets as of that date, in each case, based upon the
Company's most recent annual or quarterly financial statements delivered
pursuant to Section 7.1.
"MEMORANDUM" is defined in Section 5.3.
"MULTI EMPLOYER PLAN" means any Plan that is a "Multi employer plan" (as
such term is defined in section 4001(a)(3) of ERISA).
"NOTES" is defined in Section 1.
"OFFICER'S CERTIFICATE" means a certificate of a Senior Financial Officer
or of any other officer of the Company whose responsibilities extend to the
subject matter of such certificate.
"OTHER AGREEMENTS" is defined in Section 2.
"OTHER PURCHASERS" is defined in Section 2.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.
"PERSON" means an individual, partnership, corporation, limited liability
company, association, trust, unincorporated organization, or a government or
agency or political subdivision thereof.
"PLAN" means an "employee benefit plan" (as defined in section 3(3) of
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by the Company or any ERISA Affiliate or
with respect to which the Company or any ERISA Affiliate may have any liability.
"PREFERRED STOCK" means any class of capital stock of a corporation that is
preferred over any other class of capital stock of such corporation as to the
payment of dividends or the payment of any amount upon liquidation or
dissolution of such corporation.
"PRIORITY DEBT" is defined in Section 10.5.
"PROPERTY" or "PROPERTIES" means, unless otherwise specifically limited,
real or personal property of any kind, tangible or intangible, choate or
inchoate.
"QPAM EXEMPTION" means Prohibited Transaction Class Exemption 84-14 issued
by the United States Department of Labor.
"REQUIRED HOLDERS" means, at any time, the holders of at least 51% in
principal amount of the Notes at the time outstanding (exclusive of Notes then
owned by the Company or any of its Affiliates).
B-6
<PAGE>
"RESPONSIBLE OFFICER" means any Senior Financial Officer and any other
officer of the Company with responsibility for the administration of the
relevant portion of this agreement.
"RESTRICTED INVESTMENTS" shall mean all investments except (i) property to
be used in the ordinary course of business; (ii) current assets arising from the
sale of goods and services in the ordinary course of business; (iii) investments
in one or more Restricted Subsidiaries or any Person that concurrently becomes a
Restricted Subsidiary; (iv) investments existing at the date of closing; (v)
investments in obligations, maturing within one year from the date of
acquisition, issued by or guaranteed by the United States of America or an
agency thereof; (vi) investments in municipal securities, maturing within one
year, which are rated in one of the top two rating classifications by at least
one national rating agency; (vii) investments in certificates of deposit or
banker's acceptances issued by commercial banks, maturing within 365 days from
the date of acquisition, which are rated in one of the top two rating
classifications by at least one national rating agency; (viii) investments in
commercial paper, maturing within 270 days, rated in one of the top two rating
classifications by at least one national rating agency; and (ix) investments in
money market instrument programs of investment companies regulated under the
Investment Company Act of 1940, as amended, which are classified as current
assets in accordance with GAAP.
"RESTRICTED SUBSIDIARY" means any Subsidiary (i) of which at least 80% of
the voting securities are owned by the Company, either Co-Issuer and/or one or
more wholly-owned Restricted Subsidiaries, and (ii) which the Company or either
Co-Issuer has designated a Restricted Subsidiary by notice in writing given to
the holders of the Notes, provided that (a) the designation of a Subsidiary as
"unrestricted" or "restricted" shall not be changed more than twice (a/k/a "one
round trip") and (b) each Guarantor which is a Subsidiary shall be a Restricted
Subsidiary.
"SALE AND LEASEBACK TRANSACTION" shall means a transaction or series of
transactions pursuant to which the Company, either Co-Issuer or any Restricted
Subsidiary shall sell or transfer to any Person (other than the Co-Issuers or a
Restricted Subsidiary) any Property within 180 days after the acquisition of
such Property or the completion of construction of improvements thereon, and, as
part of the same transaction or series of transactions, the Company, either
Co-Issuer or any Restricted Subsidiary shall rent or lease as lessee, or
similarly acquire the right to possession or use of, such Property.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time to
time.
"SECURITY AGREEMENT" means the Security Agreement date as of the date
hereof among the Co-Issuers and the Collateral Agent, as amended, modified and
supplemented from time to time.
"SECURITY DOCUMENTS" means the Security Agreement, the Guarantor Security
Agreement and all other security agreements, mortgages, deeds of trust, patent
and trademark assignments, lease assignments, guarantees and other similar
agreements among the Co-Issuers or any Guarantor and the holders of the Notes or
the Collateral Agent now or hereafter delivered to the holders of the Notes or
the Collateral Agent pursuant to or in connection with the transactions
contemplated hereby and all financing statements (or comparable documents now
or hereafter filed in accordance with the UCC or applicable law) against the
Co-Issuers or any Guarantor as debtor in favor of the holders of the Notes or
the Collateral Agent as secured party and (ii) any amendments, supplements,
modifications, renewals, replacements, consolidations, substitutions and
extensions of any of the foregoing.
B-7
<PAGE>
"SENIOR FINANCIAL OFFICER" means the chief financial officer, principal
accounting officer, treasurer or comptroller of the Company.
"SUBSIDIARY" means, as to any Person, any corporation, association or other
business entity in which such Person or one or more of its Subsidiaries or such
Person and one or more of its Subsidiaries owns sufficient equity or voting
interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership or joint venture if more
than a 50% interest in the profits or capital thereof is owned by such Person or
one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries (unless such partnership can and does ordinarily take major
business actions without the prior approval of such Person or one or more of its
Subsidiaries). Unless the context otherwise clearly requires, any reference to
a "Subsidiary" is a reference to a Subsidiary of the Company.
"SUBSIDIARY GUARANTY" is defined in Section 1.
"SWAPS" means, with respect to any Person, payment obligations with respect
to interest rate swaps, currency swaps and similar obligations obligating such
Person to make payments, whether periodically or upon the happening of a
contingency. For the purposes of this Agreement, the amount of the obligation
under any Swap shall be the amount determined in respect thereof as of the end
of the then most recently ended fiscal quarter of such Person, based on the
assumption that such Swap had terminated at the end of such fiscal quarter, and
in making such determination, if any agreement relating to such Swap provides
for the netting of amounts payable by and to such Person thereunder or if any
such agreement provides for the simultaneous payment of amounts by and to such
Person, then in each such case, the amount of such obligation shall be the net
amount so determined.
"TOTAL CAPITALIZATION" shall mean the sum of (i) Total Debt; and (ii)
Consolidated Net Worth.
"TOTAL DEBT" shall mean as of the date of determination, the sum of all
Indebtedness of the Co-Issuers, the Company and its Restricted Subsidiaries
determined on a consolidated basis, without duplication, in accordance with
GAAP.
"TRANSACTION DOCUMENTS" means the Guarantees, the Intercreditor Agreement
and the Security Documents.
"UNRESTRICTED SUBSIDIARY" shall mean any Subsidiary not designated a
Restricted Subsidiary.
"WHOLLY-OWNED SUBSIDIARY" means, at any time, any Subsidiary one hundred
percent (100%) of all of the equity interests (except directors' qualifying
shares) and voting interests of which are owned by any one or more of the
Company and the Company's other Wholly-Owned Subsidiaries at such time.
B-8
<PAGE>
[FORM OF NOTE]
WESTERN STAFF SERVICES (USA), INC.
WESTERN MEDICAL SERVICES, INC.
6.77% SENIOR NOTE DUE MAY __, 2008
No. [__________] [May __, 1998]
$[________________] PNN[__________]
FOR VALUE RECEIVED, the undersigned, WESTERN STAFF SERVICES (USA), INC., a
California corporation ("WSS"), and WESTERN MEDICAL SERVICES, INC., a California
corporation ("WMS") (WSS and WMS hereinafter are referred to collectively as the
"Co-Issuers"), hereby jointly and severally promise to pay to [__________], or
registered assigns, the principal sum of [________________] DOLLARS on May __,
2008, with interest (computed on the basis of a 360-day year of twelve 30-day
months) (a) on the unpaid balance thereof at the rate of 6.77% per annum from
the date hereof, payable semiannually, on the [_____] day of November and May in
each year, commencing with November __, 1998, until the principal hereof shall
have become due and payable, and (b) to the extent permitted by law on any
overdue payment (including any overdue prepayment) of principal, any overdue
payment of interest and any overdue payment of any Make-Whole Amount (as defined
in the Note Purchase Agreements referred to below), payable semiannually as
aforesaid (or, at the option of the registered holder hereof, on demand), at a
rate per annum from time to time equal to the greater of (i) 8.77% or (ii) 2.0%
over the rate of interest publicly announced by Bank of America National Trust
and Savings Association from time to time in New York City, New York as its
"base" or "prime" rate.
Payments of principal of, interest on and any Make-Whole Amount with
respect to this Note are to be made in lawful money of the United States of
America at the principal office of Bank of America National Trust and Savings
Association in New York City or at such other place as the Co-Issuers shall have
designated by written notice to the holder of this Note as provided in the Note
Purchase Agreements referred to below.
This Note is one of a series of Senior Secured Notes (herein called the
"NOTES") issued pursuant to separate Note Purchase Agreements, dated as of May
__, 1998 (as from time to time amended, the "NOTE PURCHASE AGREEMENTS"), among
the Co-Issuers and the respective Purchasers named therein and is entitled to
the benefits thereof. Each holder of this Note will be deemed, by its
acceptance hereof, (i) to have agreed to the confidentiality provisions set
forth in Section 20 of the Note Purchase Agreements and (ii) to have made the
representation set forth in Section 6.2 of the Note Purchase Agreements.
EXHIBIT 1
(to Note Purchase Agreement)
<PAGE>
This Note is a registered Note and, as provided in the Note Purchase
Agreements, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company will not be affected by any notice to
the contrary.
This Note is subject to optional prepayment, in whole or from time to time
in part, at the times and on the terms specified in the Note Purchase
Agreements, but not otherwise. This Note is subject to prepayment.
If an Event of Default, as defined in the Note Purchase Agreements, occurs
and is continuing, the principal of this Note may be declared or otherwise
become due and payable in the manner, at the price (including any applicable
Make-Whole Amount) and with the effect provided in the Note Purchase Agreements.
This Note shall be governed by, and construed in accordance with, the laws
of the State of New York.
WESTERN STAFF SERVICES (USA), INC.
By
------------------------------------------
[Title]
WESTERN MEDICAL SERVICES (USA), INC.
By
------------------------------------------
[Title]
E-1-2
<PAGE>
FORM OF OPINION OF COUNSEL
TO THE COMPANY
Matters to Be Covered in
Opinion of Counsel to the Company
---------------------------------
1. Each of the Company, the Co-Issuers and their Subsidiaries being duly
incorporated, validly existing and in good standing and having requisite
corporate power and authority to issue and sell the Notes and to execute and
deliver the documents.
2. Each of the Company, the Co-Issuers and their Subsidiaries being duly
qualified and in good standing as a foreign corporation in appropriate
jurisdictions.
3. Due authorization and execution of the documents and such documents
being legal, valid, binding and enforceable.
4. No conflicts with charter documents, laws or other agreements.
5. All consents required to issue and sell the Notes and to execute and
deliver the documents having been obtained.
6. No litigation questioning validity of documents.
7. The Notes not requiring registration under the Securities Act of 1933,
as amended; no need to qualify an indenture under the Trust Indenture Act of
1939, as amended.
8. No violation of Regulations G, T or X of the Federal Reserve Board.
9. Company not an "investment company," or a company "controlled" by an
"investment company," under the Investment Company Act of 1940, as amended.
EXHIBIT 4.4(a)
(to Note Purchase Agreement)
<PAGE>
FORM OF OPINION OF COUNSEL
TO THE PURCHASERS
[TO BE PROVIDED ON A CASE BY CASE BASIS]
EXHIBIT 4.4(b)
(to Note Purchase Agreement)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF APRIL 18, 1998; THE CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE 24 WEEKS ENDED APRIL 18, 1998;
AND THE CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE WEEKS ENDED
APRIL 18, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-02-1998
<PERIOD-END> APR-18-1998
<CASH> 3,755
<SECURITIES> 0
<RECEIVABLES> 92,415
<ALLOWANCES> 928
<INVENTORY> 0
<CURRENT-ASSETS> 109,794
<PP&E> 40,207
<DEPRECIATION> 21,092
<TOTAL-ASSETS> 157,008
<CURRENT-LIABILITIES> 46,499
<BONDS> 0
0
0
<COMMON> 103
<OTHER-SE> 62,701
<TOTAL-LIABILITY-AND-EQUITY> 157,008
<SALES> 282,730
<TOTAL-REVENUES> 283,720
<CGS> 220,580
<TOTAL-COSTS> 274,326
<OTHER-EXPENSES> (167)
<LOSS-PROVISION> 465
<INTEREST-EXPENSE> 1,335
<INCOME-PRETAX> 8,226
<INCOME-TAX> 3,290
<INCOME-CONTINUING> 4,936
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,936
<EPS-PRIMARY> 0.32<F1>
<EPS-DILUTED> 0.32<F1>
<FN>
<F1>On May 7, 1998 the Board of Directors declared a three-for-two common stock
split effected in the form of a stock dividend payable on May 29, 1998 to
shareholders of record at the close of business on May 18, 1998. All share and
per share data in the condensed consolidated financial statements have been
retroactively adjusted for the stock split.
</FN>
</TABLE>
