UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d) of the Securities
----- Exchange Act of 1934 for the fiscal year ended January 3, 1999.
Transition Report Pursuant to Section 13 or 15(d) of the Securities
----- Exchange Act of 1934
Commission File Number: 0-26094
SOS STAFFING SERVICES, INC.
(Exact name of Registrant as specified in its charter)
Utah 87-0295503
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1415 South Main Street, Salt Lake City, Utah 84115
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 484-4400
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $0.01 par value
(Title of class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the Common Stock held by non-affiliates of the
Registrant, on March 8, 1999, based upon the closing sales price of the Common
Stock of $8.75 per share on that date, as reported on the NASDAQ/NMS Stock
Market, was approximately $50,187,856. Shares of Common Stock held by each
officer and director and by each person who owns 5% or more of the outstanding
Common Stock have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
As of March 8, 1999, Registrant had outstanding 12,691,398 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal year
ended January 3, 1999 are incorporated by reference into Parts II and IV of this
Report. Portions of the Proxy Statement for the Registrant's 1999 Annual Meeting
of Shareholders to be held May 19, 1999 are incorporated by reference in Part
III of this Report.
<PAGE>
PART I
This Annual Report on Form 10-K contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), that involve risks and uncertainties. The reader
is cautioned that the actual results of SOS Staffing Services, Inc. will differ
(and may differ materially) from the results discussed in such forward-looking
statements. Factors that could cause or contribute to such differences include
those factors discussed herein under "Factors That May Affect Future Results"
and elsewhere in this Report generally.
ITEM 1. BUSINESS
--------
General
SOS Staffing Services, Inc. ("SOS" or the "Company") is a leading
provider of staffing and consulting services in the western states. As of
January 3, 1999, SOS operated a network of 149 offices located in 17 states. The
Company provides a broad range of commercial staffing and information technology
("IT") services. Commercial staffing services include light industrial,
clerical, industrial, technical, specialty and other professional services. IT
services consist of staffing, consulting and outsourcing services such as
systems design, programming, network and systems management and business
consulting.
Since the completion of the Company's initial public offering (the
"IPO") in 1995, the Company has acquired 46 staffing and consulting companies,
representing 73 offices. The Company's network of offices has increased from 42,
at the time of the IPO, to 149, as of January 3, 1999. Sixteen of the
acquisitions completed since July 1996 were IT staffing and consulting
companies, which have allowed the Company to diversify the mix of services
provided to include higher margin services. Additional acquisitions have added
other specialty services, including medical administrative support,
professional, mining, geology, hydrology, high-end administrative and
accounting, and environmental services.
Business Strategy
The Company's goal is to enhance its profitability through a focused
business strategy. The Company has identified the following key elements of its
strategy, which management believes are critical to the Company's success:
Targeted Customers and Projects. Historically, in the commercial
staffing segment, the Company's customers have consisted primarily of small to
mid-size companies. Sales to these businesses tend to generate higher margins
than larger national accounts. The Company believes that focusing on small to
mid-sized customers and smaller projects limits its exposure to margin pressure
associated with large national contracts and volume discounts.
The Company's IT division pursues customers who are generally larger
than many of the Company's commercial staffing customers. Many of the Company's
IT customers are Fortune 1000 companies, government agencies and educational
institutions. The Company focuses on smaller specialty projects at these larger
businesses or as support in larger projects. The Company believes that it has
developed competitive advantages in serving mid-sized and larger businesses and
projects by tailoring its operations to meet local customer needs, including the
establishment of strong customer relationships through local marketing efforts,
quality service and community involvement.
Pursue Opportunities in Smaller Markets. In the commercial staffing
segment, SOS has focused on opening hub offices in key metropolitan areas
followed by establishing offices in surrounding markets. This decentralized
office management strategy locates multiple offices in close proximity to
2
<PAGE>
customers and staffing employees. The Company believes this strategy has allowed
it to rapidly gain market share with low entry costs. Once a hub office has been
established, the Company focuses on leveraging hub office resources to market
and deliver services to surrounding smaller markets and to cross-sell IT and
other specialty staffing services. In these markets, which are often too small
to attract substantial competition from national staffing companies, the Company
has frequently achieved significant penetration and has often become the
dominant provider of staffing services.
Deliver Higher Margin Services. The Company's operating results since
1991 have been significantly enhanced by its strategy of delivering higher
margin services. Over the past several years, the Company has focused its
efforts on expanding its range of services to include higher margin specialty
services such as IT staffing and consulting, permanent placement, administrative
staffing support services for medical facilities and other professional
services. The Company has de-emphasized marketing to accounts where competitive
pricing makes margins unacceptable or to accounts where workers' compensation
costs adversely affect profitability.
Offer a Broad Range of Services. The Company's strategy includes
offering its customers a broad range of staffing services, including light
industrial, clerical, IT, industrial, technical and other professional services,
as well as a range of consulting services (including telephony, IT, and general
business consulting, as well as strategic planning). The Company also provides
related services to its customers, including payrolling, skill and drug testing,
risk management consulting and other professional staffing services. In larger
markets, the Company offers these services through several separate offices
operating under established names. The Company also provides outsourcing
services to customers whereby the Company contracts to perform a particular
business function for an agreed price, which includes providing staffing,
equipment and supplies. The Company is also expanding its on-site services, in
which SOS locates an on-site manager at the customer's facility to manage all of
the customer's employee staffing requirements.
Provide Centralized Support and Encourage Entrepreneurial Management.
The Company's commercial staffing offices are supported by centralized functions
at corporate headquarters that include marketing, recruiting, training and
retention programs, as well as workers' compensation and other insurance
services, accounts payable, purchasing, credit, legal review and other
administrative support services. Generally, each staffing office has access to
the Company's central management information system and its proprietary software
that provides information on customer requirements, available applicants,
staffing employees on assignment and other information which facilitates
efficient response to customer job orders.
The Company has consolidated its IT staffing, consulting and
outsourcing operations into Inteliant Corporation, a wholly-owned subsidiary of
the Company ("Inteliant") and has developed a support system tailored to the
specific needs of IT customers. Inteliant has responsibility for accounting
(including accounts payable, accounts receivable, and purchasing), marketing,
recruiting, and training. Other functions such as workers' compensation and
other insurance services and legal review have been centralized at the Company's
corporate headquarters.
To encourage an entrepreneurial approach to field management, the
Company has established financial targets and performance standards, which are
utilized at all offices. A substantial portion of the Company's field management
compensation is incentive-driven and based upon meeting financial targets and
quality standards. Managers are also given considerable discretion to price
services and to respond to specific customer requirements.
Emphasize Service and Value. The Company focuses on providing service
and value to its customers. The Company's staff employees seek to establish and
maintain long-term relationships with its customers by developing knowledge of
customers' businesses, responding promptly to customer orders and monitoring job
performance and customer satisfaction. The Company targets customer accounts
where service and quality are perceived to be as important as pricing of
services. This allows the Company to be more selective and to provide
higher-quality services while maintaining desired margins.
3
<PAGE>
Growth Strategy
Management believes the Company has substantial opportunities to expand
its office network and the range of services it offers to its customers. Since
completing its IPO in June 1995, the Company has added a total of 107 offices
through internal growth and acquisitions. The Company intends, for the
foreseeable future, to concentrate on strengthening its internal office network
by focusing on internal growth.
Focus on Internal Growth. During the last five years, the Company has
maintained a strong internal revenue growth rate. The Company's internal growth
strategy consists of the following:
o Increase Penetration of Existing Markets. The Company continually
seeks to add new customers and offices in the geographic markets
it currently serves. In many instances, the Company pursues such
penetration by establishing a "hub" office from which it can
develop additional offices within a metropolitan area. SOS also
intends to introduce complementary or specialty services in
existing markets and provide incentives to field and local
managers to focus on business development within existing offices.
o Enter New Markets. The Company plans to open new branches in
markets not currently served by existing offices. Frequently, the
Company enters new markets by establishing a "hub" office located
in a central location. The Company then opens new offices in
surrounding markets which benefit from the administrative support
and resources of the hub office. This strategy has enabled the
Company to enter many smaller markets cost effectively.
o Expand Service Offerings. The Company is actively seeking to
expand the range of IT services it offers to its customers to
include electronic commerce solutions, Internet/intranet
consulting, off-site application development, web enablement,
telecommunications systems solutions and expanded outsourcing
capabilities in the areas of help-desk management and data-center
monitoring. The Company intends to expand its vendor on-premise
business, pursuant to which SOS manages all of the customer's
staffing requirements on-site. Additionally, the Company plans to
expand its offering of high-end administrative services as well as
accounting and financial services. The Company also intends to
further develop partnering relationships under which SOS works
with other staffing providers to meet the customer's staffing
requirements.
o Cross-sell Services. The Company actively seeks to cross-sell
commercial staffing and IT staffing and consulting services to
existing customers. Through incentive compensation arrangements,
the Company actively encourages referrals and cross-selling
between and within its commercial and IT operations.
Through integration of existing processes, consolidating operations,
and providing resources to existing offices, the Company anticipates that it
will be in a better position to exploit potential services that complement the
Company's operations. Additionally, the Company believes it will be able to
respond more efficiently to the demands of its existing customers while
expanding its offerings to new customers.
Operations
Services Offered. The Company offers a broad range of commercial
staffing and IT staffing, consulting, and outsourcing services. Generally, the
commercial segment provides light industrial, clerical and industrial services
through SOS Staffing Services, Skill Staff, Industrial Specialists, TOPS and
Century Personnel offices. The commercial segment also offers other specialized
services provided by offices such as SOS Technical Services (engineers,
chemists, geologists, designers, drafters, illustrators, artists, writers and
other technical personnel), AccountStaff (accountants, bookkeepers, auditors,
data entry personnel and financial analysts), PAMS (medical administrative
4
<PAGE>
services), National Collex (collection services and project billing for medical
facilities), Devon & Devon and Truex (high-end administrative staffing and
permanent placement), CGS Personnel (mining, mineral exploration and
environmental staffing) and Mortgage Staffing (loan servicing and loan
productions professionals).
The Company's commercial staffing services also include professional
employer services such as payrolling, outsourcing, on-site and administrative
professional services. Payrolling typically involves the transfer of a
customer's short-term seasonal or special use employees to the Company's payroll
for a designated period. Outsourcing represents a growing trend among businesses
to contract with third parties to provide a particular function or business
department for an agreed price over a designated period. On-site services
involve locating a regular SOS employee at the customer's place of business to
manage all of the customer's temporary staffing requirements. Administrative
professional services offer SOS customers skills testing, drug testing and risk
management services. Skills testing available to SOS customers includes
cognitive, personality and psychological evaluations. Drug tests are confirmed
through an independent certified laboratory. Risk management services include
on-site safety inspection and consulting services. As of January 3, 1999, the
Company also provided professional employer organization services on a limited
basis, which offers to SOS customers the benefits of employee leasing.
Historically, the Company has provided IT staffing, consulting and
outsourcing services under the business names of acquired IT business units;
however, in 1998, the Company combined all of its IT services into Inteliant.
The Company's IT services consist of IT staffing, consulting and outsourcing
services. The Company's IT staffing services include computer programming,
system design, analysis and administration, network and systems management and
software and documentation development. IT staffing services are similar in many
respects to commercial staffing services; however, IT services generally require
increased specialization and technical skill, carry significantly higher hourly
rates and involve substantially longer job assignments. The Company's IT
consulting services are focused on providing business solutions and typically
include managing application development, enterprise resource planning systems
implementation, e-commerce enablement, telecommunications consulting and
operations engineering. Company consultants provide innovative ideas, insight
and experience to address the customer's business needs then work with the
customer to implement strategic solutions. IT consulting engagements typically
last six months to one year and may require the services of several specialized
consultants or teams. The Company also delivers IT outsourcing services to
customers who turn over to Inteliant personnel the management and staffing of
specific IT functions.
Branch Offices. The Company provides commercial staffing services
through a network of 127 offices located in 15 states. The Company currently
operates at least one office in every market in the mountain states (Arizona,
Colorado, Idaho, Montana, New Mexico, Nevada, Utah, and Wyoming) with a
population base in excess of 100,000 people. In larger markets, the Company
generally provides light industrial and clerical personnel through SOS Staffing
Services offices, while service-specific specialty offices provide specialty
services. In smaller markets, SOS offices offer a broader variety of commercial
staffing services including specialty services. Through acquisitions and
internal development, the Company also has commercial staffing offices in
California, Hawaii, Kansas, Missouri, Oregon, Texas, and Washington.
The Company provides IT staffing and consulting services from 22 IT
offices located throughout the western states and mid-west plus Massachusetts
and North Dakota. The Company's IT staffing and consulting offices generally
serve larger geographic areas than SOS commercial staffing offices, principally
due to the increased specialization associated with IT services. The Company's
strategy of integrating and expanding its existing IT staffing and consulting
office network will include efforts to position IT offices in strategic
locations throughout the United States, rather than the "hub and spoke" approach
used by the Company to expand its network of commercial staffing offices.
The Company estimates the capital cost of establishing a new office
ranges from $15,000 to $50,000, exclusive of working capital requirements. The
Company's new offices have historically achieved profitability in six to 12
months, while offices created by division of an existing office are usually
profitable from inception.
5
<PAGE>
Sales and Marketing. SOS generally markets its commercial staffing
services through its network of offices whose managers, supported by the
Company's marketing staff, make regular personal sales visits to larger accounts
and prospects. The Company emphasizes long-term personal relationships with its
customers and develops these relationships through regular contact, periodic
assessment of customer requirements and regular monitoring of employee
performance. New customers are obtained through customer referrals,
telemarketing, cold calls and advertising in a variety of local and regional
media, including television, radio, direct mail, Yellow Pages, newspapers,
magazines and trade publications. The Company is also a sponsor of job fairs and
other community events. In addition, the Company uses the Internet to support
its marketing efforts.
The Company's IT sales and marketing efforts may include the activities
described above, but are generally more focused to address IT staffing and
consulting needs which are typical of specific customers. Many of the Company's
existing and prospective IT customers routinely outsource IT functions, such as
programming, help desk and data-center monitoring. The Company's IT staffing and
consulting personnel seek to identify IT requirements of its customers and
promote IT services designed to meet those requirements. In addition to personal
sales visits, targeted mailings and telephone solicitations, the Company's IT
personnel actively promote the Company's services through cross-selling
complementary IT services to existing customers and participate in industry
trade associations.
Recruiting. The Company believes a key element of its growth and
profitability has been its ability to recruit and retain qualified staffing
personnel. In an effort to attract commercial staffing personnel, the Company
employs recruiters who regularly visit schools and professional associations and
present career development programs to various organizations. In addition, the
Company obtains applicants from referrals by its staffing employees and from
advertising on radio, television, in the Yellow Pages and through other print
media. The Company has recently begun to utilize the Internet to recruit
professional, IT and technical staffing employees. Each applicant for a
commercial staffing position is interviewed with emphasis on past work
experience, personal characteristics and individual skills. The Company utilizes
the Dictionary of Occupational Titles published by the Department of Labor to
evaluate and assign staffing employees. The Company maintains software-training
programs at its offices for applicants and employees who may be trained and
tested at no cost to the applicant, employee or Company customer.
The Company's efforts to recruit IT staffing and consulting personnel
frequently include some or all of the recruiting activities employed by the
Company's commercial staffing offices, but typically rely more heavily on
identifying potential employees who possess specialized education, training or
work experience. The Company follows a rigorous screening and interview process
before referring qualified candidates to customers for on-site interviews. The
Company's IT recruiting efforts also rely heavily upon industry contacts,
personal networks and referrals from existing and former IT personnel.
To promote loyalty and retention among its staffing employees, the
Company provides its staffing employees with certain employee benefits,
including access to a Section 401(k) defined contribution plan, a credit union
and health insurance programs. In addition, the Company has the ability to issue
paychecks to commercial staffing employees on a daily basis for work performed.
Customers. Historically, commercial staffing customers have consisted
primarily of small to mid-size customers. Management believes there remains
significant opportunities to deliver profitable commercial staffing services to
small and mid-size customers who are less likely to require substantial volume
discounts than larger, nationwide companies. As the Company expands its network
into larger cities in the western states, the Company anticipates that it will
provide commercial staffing services to larger customers who focus on value
rather than cost, but will continue to focus its efforts on attracting and
providing quality services to small and mid-size companies located in such
larger cities.
The Company's IT customer base, which consists primarily of IT
customers served by companies acquired by SOS since July 1996, includes
customers who are generally larger than many of the Company's commercial
staffing customers. Many of the Company's IT customers are Fortune 1000
companies, government agencies and educational institutions. Many of the
projects are smaller in scope than those performed by larger national consulting
6
<PAGE>
companies. On larger projects, the Company frequently provides service in a
supporting role to the project manager. The Company anticipates that its
increased focus on IT staffing and consulting, national branding with the
"Inteliant Corporation" name, as well as its expansion into larger metropolitan
areas, will lead to additional opportunities to provide IT services to mid-size
and larger customers.
No customer accounted for more than two percent of the Company's
consolidated net service revenues during the 1998 fiscal year and the Company's
top ten customers accounted for less than eight percent of service revenues
during the same period. Approximately 14% of the Company's service revenues
generated in the IT segment during the 1998 fiscal year were obtained from two
national customers within the telecommunications industry, and the top ten
customers in that segment account for approximately 20% of total segment
revenues. Management believes, however, that these customers do not represent a
substantial credit or business risk and feel that the segment has adequate
diversification and resources to be protected in the event of the loss of any of
these customers.
Risk Management Program. SOS is responsible for all employee-related
expenses for its staff and temporary employees including workers' compensation,
unemployment insurance, social security taxes, state and local taxes and other
general payroll expenses. The Company has implemented a deductible workers'
compensation program through CIGNA Property and Casualty ("CIGNA") with a loss
cap of $250,000 per incident. Employees in Nevada, Washington, Wyoming, and
North Dakota are insured through those states' insurance funds because private
insurance is not permitted in those states. The Company employs a full-time
professional risk manager and staff who work closely with the insurance carrier
to manage claims and establish appropriate reserves.
The Company has also developed workers' compensation loss control
programs that seek to limit claims through employee training and avoidance of
high-risk job assignments such as roofing or logging. Except where prohibited by
law, all employees are required to agree in advance to drug testing following
any work-related accident and all major accidents are investigated. The Company,
in cooperation with its insurer, monitors all claims and regularly reviews the
claims with an emphasis on early closure.
Information Systems
The Company's central management information system is linked to most
of the Company's commercial staffing offices. The centralized system is designed
to support Company-wide operations such as payroll, billing, accounting and
sales and management reports. The Company has some operations, obtained through
acquisition, that have their own centralized systems in place. Systems have been
implemented to automate the reporting of these entities to the Company; however,
the Company does not anticipate immediately replacing the existing systems at
these locations.
The Company has recently upgraded the corporate and commercial staffing
segment's financial systems with plans to upgrade additional information
processing functions in 1999 and beyond. The new system provides for greater
flexibility in back office functions while interfacing well with the front
office operations at the branch level. All files are backed up routinely and
stored off-site. Critical files are backed up on a daily basis. The present
system has capacity to service the Company's anticipated growth without
significant capital expenditures for the foreseeable future
The Company has developed a central management information system for
use by the Company's IT offices. All of the Company's 22 IT offices are linked
to a central management information system. The Company anticipates that its IT
system will be connected to the Company's existing system for certain common
functions; however, the IT system is designed to accommodate the different
business cycles and processes associated with the IT industry.
7
<PAGE>
Year 2000
The management of the Company believes that it is adequately addressing
the year 2000 ("Y2K") problem. In short, the Y2K problem is a result of IT
equipment and systems being designed to recognize the year portion of a date as
two rather than four digits, which means that years coded "00" are recognized by
many systems as the year 1900, not the year 2000. As a result, certain hardware
and software products may not properly function or may fail beginning in year
2000.
As part of the Company's internal quality system based on the
principles of ISO 9002, the Company has formed an internal task force to
identify, address, and remedy Y2K issues. The Company's information system for
its primary commercial staffing operations has been tested and is believed to be
Y2K compliant. Additionally, the Company is currently implementing new financial
system software that has been warranted by the developer to be Y2K compliant.
The Company is also in the process of assessing and testing the information
systems of Inteliant and other independent systems within the Company. The
Company anticipates that such assessment and testing will be completed by
mid-1999.
The Company has identified suppliers of critical services and products
and has sent questionnaires to each such supplier concerning Y2K compliance. The
Company will continue to monitor the compliance of each such supplier through
1999 and beyond. New vendors are also required to provide information concerning
Y2K compliance. The Company is following a similar process for Inteliant and
other independent operations within the Company.
The Company has also sent questionnaires to each of its major customers
regarding the status of Y2K compliance. The Company will continue to monitor the
compliance of each such customer through 1999 and beyond. The Company has
amended its credit application required for each new customer requesting
disclosure of Y2K compliance. The Company is following a similar process for
Inteliant and other independent operations within the Company.
The Company is currently developing an assessment program for each of
its branch offices to assess imbedded chip technology for Y2K compliance. Many
products or systems contain imbedded computer chips that may or may not be Y2K
compliant. Examples of such items include elevators, alarm systems, HVAC units
and thermostats, telephone and voicemail systems. The Company believes that its
assessment of imbedded chip technology will be completed by mid-1999.
Based on current information, the Company does not believe that its
internal systems will fail because of the Y2K problem or cause an interruption
in the delivery of services to its customers. In the event such systems fail,
the Company believes that it has adequate manual systems that would allow for
continued delivery of services to customers. Management does not foresee
significant liability to third parties if the Company's systems are not Y2K
compliant. However, the Company faces two major risks related to Y2K that could
have a material adverse affect on the business of the Company. The first major
Y2K risk is service disruption from third-party suppliers of critical services,
such as telephone, electrical and banking services. As part of its critical
suppliers' assessment, the Company is monitoring and seeking assurance of Y2K
compliance from such suppliers. The second major risk is that the operations of
the customers of the Company will be disrupted by the Y2K problem (either
internally or because of third-party service providers) which could result in a
decrease in or the cessation of the need for the Company's services.
The Company has not yet approved a formal contingency plan for Y2K
issues. The Company expects to have a formal contingency plan in place during
fiscal 1999.
The Company estimates that approximately $150,000 will be incurred in
verifying its Y2K compliance. The majority of costs will be directed to
independent sources for testing of the procedures the Company has implemented.
The costs related to the Company's Y2K compliance program have not had, and are
not expected to have, a material impact on the Company's financial condition,
results of operations or cash flows.
8
<PAGE>
Competition
The Company's competitors consist of national, regional and local
companies operating offices throughout the nation, making the industry highly
competitive and highly fragmented, with limited barriers to entry. The Company
faces intense competition from large national and international companies with
substantially greater financial and marketing resources than those of the
Company, as well as strong local and regional staffing companies.
The Company competes for qualified staffing and consulting employees
and for customers who require the services of such employees. The principal
competitive factors in attracting and retaining qualified staffing employees are
competitive salaries and benefits, quality and frequency of assignments and
responsiveness to employee needs. The Company believes that many persons who
seek temporary employment are also seeking regular employment and that the
availability of assignments which may lead to regular employment is an important
factor in its ability to attract qualified staffing employees.
The principal competitive factors in obtaining customers are a strong
sales and marketing program, having qualified staffing and consulting employees
to assign in a timely manner, matching of customer requirements with available
resources, competitive pricing and satisfactory work production. The Company
believes its strong emphasis on providing service and value to its customers and
employees are important competitive advantages.
Seasonality
The Company's business follows the seasonal trends of its customers'
businesses. Historically, the Company has experienced lower revenues in the
first quarter due to the seasonal trends of its customers and lower overall
economic activity.
Trade Names
The Company uses a variety of trademarks and trade names which are
generally descriptive of the temporary staffing services offered, including SOS
Staffing Services, Century Personnel, Centech, Devon & Devon, Skill Staff,
AccountStaff, TSI, Industrial Specialists, SOS Technical Services, ServCom, PAMS
Employment Services, National Collex, CGS Personnel, Mortgage Staffing, TOPS
Staffing Services, Truex, Inteliant, and other trade names. The Company has
registered or reserved the majority of these names in the appropriate states.
Staff Employees
At January 3, 1999, the Company had approximately 1,400 staff
employees, of which, approximately 650 are billable. The Company's training
department provides general and job specific training to all staff employees,
including continuing training with experienced counterparts. None of the
Company's staff employees is covered by collective bargaining agreements. The
Company considers its relationship with its staff employees to be good.
Factors that May Affect Future Results
The statements contained in this Annual Report on Form 10-K that are
not purely historical are "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
forward-looking statements involve various risks and uncertainties.
Forward-looking statements contained in this Report include statements regarding
the Company's acquisition plans and opportunities, existing and proposed service
offerings, market opportunities, expectations, goals, revenues, financial
performance, strategies, intentions for the future and any other statements to
9
<PAGE>
the effect that the Company or its management "believes", "expects",
"anticipates", "plans" or other similar expressions. Such forward-looking
statements are included under Item 1. "Business", Item 2. "Properties", Item 3.
"Legal Proceedings" and Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations." All forward-looking statements
included in this Report are made as of the date hereof, based on information
available to the Company as of such date, and the Company assumes no obligation
to update any forward-looking statements. It is important to note that such
statements may not prove to be accurate, and that the Company's actual results
and future events could differ materially from those anticipated in such
statements. Many factors could cause actual results to differ materially from
the Company's expectations, including, without limitation, the factors
identified below.
The Company's future results will be impacted by, among other factors,
the Company's ability to implement its growth strategy, which, in turn, is
dependent upon a number of factors, including the availability of working
capital to support such growth, plans to integrate and expand the Company's
offering of IT services, the Company's ability to integrate the operations of
acquired businesses, management's ability and resources to implement the growth
strategy and the successful hiring, training and retention of qualified field
management. Future results will also be affected by other factors associated
with the operation of the Company's business, including the Company's response
to existing and emerging competition, demand for the Company's services, effects
associated with the recent transition within the Company's senior management,
the Company's ability to maintain profit margins in the face of pricing
pressures, the Company's efforts to develop and maintain customer and employee
relationships, economic fluctuations and employee-related risks and expenses.
All subsequent written and oral forward-looking statements attributable
to the Company or persons acting on its behalf are expressly qualified in their
entirety by this section and other factors included elsewhere in this Report.
You also should consult other factors identified from time to time in the
Company's periodic reports to the Securities and Exchange Commission.
ITEM 2. PROPERTIES
----------
As of January 3, 1999, the Company provided services through 149
offices in 17 states. These offices typically consist of 1,200 to 5,000 square
feet and are generally leased by the Company for terms of three to five years.
Offices in larger or smaller markets may vary in size from the typical office.
The Company does not expect that maintaining or finding suitable lease space at
reasonable rates in its markets or in areas where the Company contemplates
expansion will be difficult.
The Company's executive and administrative offices are located in Salt
Lake City, Utah. The premises consist of approximately 15,600 square feet and
are leased from a related party for a term ending on March 31, 2005, with an
option to renew for 10 additional years (see "Certain Relationship and Related
Transactions"). The Company believes that the terms of the lease are at least as
favorable as could be obtained from any unrelated third party.
ITEM 3. LEGAL PROCEEDINGS
-----------------
In the ordinary course of its business, the Company is periodically
threatened with or named as a defendant in various lawsuits or administrative
proceedings. The Company maintains insurance in such amounts and with such
coverage and deductibles as management believes to be reasonable and prudent.
The principal risks covered by insurance include workers' compensation, personal
injury, bodily injury, property damage, errors and omissions, fidelity losses,
employer practices liability and general liability.
There is no pending litigation that the Company currently anticipates
will have a material adverse effect on the Company's financial condition or
results of operations.
10
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of the 53 weeks ended January 3, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
---------------------------------------------------------------------
The information required by this Item is incorporated by reference to
page 37 of the Company's 1998 Annual Report to Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The information required by this Item is incorporated by reference to
page 1 of the Company's 1998 Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
The information required by this item in incorporated by reference to
pages 9 through 16 of the Company's 1998 Annual Report to Shareholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The Company is exposed to interest rate changes primarily in relation
to its 1998 Amended Credit Facility and its 1998 Senior Debt Placement. At
January 3, 1999, the Company's outstanding borrowings on the Credit Facility
were $4.9 million while outstanding borrowings on the Senior Debt Placement were
$35.0 million. The Company's interest rate risk management objective is to limit
the impact of interest rate changes on earnings and cash flows and to lower its
overall borrowing costs. To achieve this objective the Company borrows against
its credit facility at variable interest rates. The Company's senior debt
placement bears interest at a fixed interest rate. For fixed rate debt, interest
rate changes generally affect the fair value of the debt, but not the earnings
or cash flows of the Company. Changes in the fair market value of fixed rate
debt generally will not have a significant impact on the Company unless the
Company is required to refinance such debt. At January 3, 1999, the carrying
value of the senior debt placement approximated its fair value.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
------------------------------------------
The information required by this item is incorporated by reference to
pages 17 through 35 of the Company's 1998 Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
-----------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None
11
<PAGE>
PART III
The information required by this Part III is omitted from this Report
in that the Company will file with the Securities and Exchange Commission a
definitive proxy statement for the Annual Meeting of Shareholders of the Company
to be held on May 19, 1999 (the "Proxy Statement"), not later that 120 days
after January 3, 1999, and certain information included therein is incorporated
herein by reference. Only those sections of the Proxy Statement specifically
identified below which address the items set forth herein are incorporated by
reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The information required by this Item is incorporated by reference to
the sections entitled "Election of Directors" and "Executive Officers" in the
Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The information required by this Item is incorporated by reference to
the sections entitled "Election of Directors-Director Compensation" and
"Executive Officers-Executive Compensation" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The information required by this Item is incorporated by reference to
the section entitled "Principal Holders of Voting Securities" in the Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information required by this item is incorporated by reference to
the section entitled "Certain Relationships and Related Transactions" in the
Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) The following documents are filed as part of this Report:
1. Consolidated Financial Statements: The following Consolidated Financial
Statements of the Company and Report of Independent Public Accountants,
are incorporated by reference to pages 17 through 23 of the Company's
1998 Annual Report to Shareholders:
Consolidated Balance Sheets--As of January 3, 1999 and December 28,
1997
Consolidated Statements of Income--For the Fiscal Years Ended January
3, 1999, December 28, 1997 and December 29, 1996.
Consolidated Statements of Shareholders' Equity--For the Fiscal Years
Ended January 3, 1999, December 28, 1997 and December 29, 1996.
Consolidated Statements of Cash Flows--For the Fiscal Years Ended
January 3, 1999, December 28, 1997 and December 29, 1996.
12
<PAGE>
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
2. Financial Statement Schedules
-----------------------------
No schedules submitted
(c) Exhibits:
<TABLE>
<CAPTION>
Exhibit Incorporated by Filed Herewith
No. Exhibit Reference
- --------------- ------------------------------------------------------ ------------------- -----------------
<S> <C> <C> <C>
3.1 Amended and Restated Articles of Incorporation of (1)
the Company
3.2 Amended and Restated Bylaws of the Company (1)
4.2 Amended and Restated Articles of Incorporation of (1)
the Company
4.3 Amended and Restated Bylaws of the Company (1)
10.1 SOS Staffing Services, Inc. Stock Incentive Plan (3)
dated May 4, 1995, as amended
10.2 Form of Employment Agreement entered into by the (1)
Company and each of Messrs. Richard D. Reinhold,
Howard W. Scott, Jr. and Richard J. Tripp
10.3 Form of Consulting Agreement between the Company (2)
and Ms. JoAnn W. Wagner, effective as of July 1, 1995
10.4 Lease Agreement between the Company and Reed F.
Reinhold, Rand F. Reinhold, Rena R. Qualls and Robb (1)
F. Reinhold, dated April 1, 1995, covering the
Company's Corporate office building
10.5 Credit Agreement dated as of July 11, 1996 by and (4)
among the Company, First Security Bank, N.A. and NBD
Bank, together with Security Agreement and Revolving
Credit Notes
10.6 Stock Purchase Agreement between the Company, Wolfe (5)
& Associates, Inc. and certain shareholders of Wolfe
& Associates, Inc. dated November 5, 1996
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporated by Filed Herewith
No. Exhibit Reference
- --------------- ------------------------------------------------------ ------------------- -----------------
<S> <C> <C> <C>
10.7 Asset Purchase Agreement between the Company, (6)
Execusoft, Inc. and the principals of Execusoft,
Inc., effective as of August 27, 1997
10.8 Asset Purchase Agreement between Wolfe & Associates, (7)
Inc., the Company, JesCo Technical Services, Inc.,
and John E. Shaffer, effective September 28, 1997
10.9 Asset Purchase Agreement between the Company, (8)
Century Personnel, Inc., M.A. Jones Enterprises,
Inc. and Michael A. Jones, effective October 27, 1997
10.10 Asset Purchase Agreement between the Company, Aquas, (9)
Inc. and Abacab Software, Inc. effective August 19,
1998
10.11 Note Purchase Agreement dated September 1, 1999. (10)
10.12 Amended Credit Agreement dated July 27, 1998 by and (10)
among the Company, The First National Bank of
Chicago and First Security Bank, N.A., together with
Security Agreement and Revolving Credit Notes
13 Annual Report to Shareholders for the year ended (10)
January 3, 1999, incorporated by reference into
Items 5 through 8 of this Annual Report on Form 10-K
and, except as so incorporated by reference, the
Annual Report to Shareholders is not deemed to be
filed as part of this Report.
21 Subsidiaries of the Company (10)
23.2 Consent of Independent Public Accountants (10)
27 Financial Data Schedule (10)
</TABLE>
(1) Incorporated by reference to the exhibits to a Registration Statement
on Form S-1 filed by the Company on May 17, 1995, Registration No.
33-92268.
(2) Incorporated by reference to the exhibits to Amendment No. 1 to a
Registration Statement on Form S-1 filed on June 22, 1995, Registration
No. 33-92268.
(3) Incorporated by reference to the exhibits to the Company's Annual
Report of Form 10-K for the year ended December 31, 1995 filed by the
Company on March 29, 1996.
(4) Incorporated by reference to the exhibits to a Quarterly Report on Form
10-Q for the quarter ended September 26, 1996 filed by the Company on
November 14, 1996.
(5) Incorporated by reference to the exhibits to a Current Report on Form
8-K filed by the Company on November 14, 1996.
14
<PAGE>
(6) Incorporated by reference to the exhibits to a Current Report on Form
8-K filed by the Company on September 3, 1997.
(7) Incorporated by reference to the exhibits to a Current Report on Form
8-K filed by the Company on September 18, 1997.
(8) Incorporated by reference to the exhibits to an Amendment to Current
Report on Form 8-K/A filed by the Company on October 15, 1997.
(9) Incorporated by reference to the exhibits to an Amendment to Current
Report on Form 8-K/A filed by the Company on August 19, 1998.
(10) Filed herewith and attached to this Report following page 13 hereof.
(d) Financial Statement Schedules:
------------------------------
No schedules submitted.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereto duly authorized.
SOS STAFFING SERVICES, INC.
Date: March 31, 1999 By: /s/ Gary B. Crook
-----------------------
Gary B. Crook
Executive Vice President,
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Name Title Date
- ---- ----- ----
/s/ JoAnn W. Wagner Chairman of the Board and March 31, 1999
------------------
JoAnn W. Wagner Chief Executive Officer
(principal executive officer)
/s/ Gary B. Crook Executive Vice President and Chief March 31, 1999
- -----------------
Gary B. Crook Financial Officer
(principal accounting officer)
/s/ Michael A. Jones Director and March 31, 1999
- --------------------
Michael A. Jones Executive Vice President
/s/ Richard J. Tripp Director and March 31, 1999
- --------------------
Richard J. Tripp Senior Vice President
/s/ Stanley R. deWaal Director March 31, 1999
- ---------------------
Stanley R. deWaal
/s/ Samuel C. Freitag Director March 31, 1999
--------------------
Samuel Freitag
/s/ R. Thayne Robson Director March 31, 1999
- --------------------
R. Thayne Robson
/s/ Randolph K. Rolf Director March 31, 1999
- --------------------
Randolph K. Rolf
16
Execution Copy
- --------------------------------------------------------------------------------
SOS STAFFING SERVICES, INC.
$5,000,000 - 6.72% Senior Notes, Series A, due September 1, 2003
$30,000,000 - 6.95% Senior Notes, Series B, due September 1, 2008
---------------
NOTE PURCHASE AGREEMENT
---------------
Dated September 1, 1998
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
TABLE OF CONTENTS
(Not a part of the Agreement)
<CAPTION>
SECTION HEADING PAGE
------- ------- ----
<S> <C> <C>
SECTION 1. AUTHORIZATION OF NOTES; GUARANTIES............................................................-1-
Section 1.1. The Notes. ..........................................................................-1-
Section 1.2. Subsidiary Guaranty..................................................................-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. Delivery of 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 COMPANY.................................................-4-
Section 5.1. Organization; Power and Authority....................................................-4-
Section 5.2. Authorization, etc...................................................................-5-
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.....................................................-7-
Section 5.8. Litigation; Observance of Agreements, Statutes and Orders............................-7-
Section 5.9. Taxes................................................................................-7-
Section 5.10. Title to Property; Leases............................................................-8-
Section 5.11. Licenses, Permits, etc...............................................................-8-
Section 5.12. Compliance with ERISA................................................................-8-
Section 5.13. Private Offering by the Company......................................................-9-
Section 5.14. Use of Proceeds; Margin Regulations..................................................-9-
Section 5.15. Existing Indebtedness; Future Liens.................................................-10-
Section 5.16. Foreign Assets Control Regulations, etc.............................................-10-
Section 5.17. Status under Certain Statutes.......................................................-10-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Section 5.18. Environmental Matters...............................................................-10-
Section 5.19. Solvency............................................................................-11-
SECTION 6. REPRESENTATIONS OF THE PURCHASER.............................................................-11-
Section 6.1. Purchase for Investment.............................................................-11-
Section 6.2. Source of Funds.....................................................................-12-
SECTION 7. INFORMATION AS TO COMPANY....................................................................-13-
Section 7.1. Financial and Business Information..................................................-13-
Section 7.2. Officer's Certificate...............................................................-16-
Section 7.3. Inspection..........................................................................-16-
SECTION 8. PREPAYMENT OF THE NOTES......................................................................-17-
Section 8.1. Required Prepayments................................................................-17-
Section 8.2. Optional Prepayments with Make-Whole Amount.........................................-17-
Section 8.3. Allocation of Partial Prepayments...................................................-18-
Section 8.4. Maturity; Surrender, etc............................................................-18-
Section 8.5. Purchase of Notes...................................................................-18-
Section 8.6. Make-Whole Amount...................................................................-18-
SECTION 9. AFFIRMATIVE COVENANTS........................................................................-20-
Section 9.1. Compliance with Law.................................................................-20-
Section 9.2. Insurance...........................................................................-20-
Section 9.3. Maintenance of Properties...........................................................-20-
Section 9.4. Payment of Taxes and Claims.........................................................-20-
Section 9.5. Corporate Existence, etc............................................................-21-
Section 9.6. New Subsidiaries....................................................................-21-
SECTION 10. NEGATIVE COVENANTS...........................................................................-21-
Section 10.1. Transactions with Affiliates........................................................-21-
Section 10.2. Merger, Consolidation, etc..........................................................-21-
Section 10.3. Liens...............................................................................-22-
Section 10.4. Limitation on Total Indebtedness....................................................-24-
Section 10.5. Limitation on Subsidiary Indebtedness...............................................-24-
Section 10.6. Sale of Assets......................................................................-24-
Section 10.7. Minimum Consolidated Net Worth......................................................-25-
Section 10.8. Minimum Fixed Charge Coverage.......................................................-25-
Section 10.9. Line of Business....................................................................-25-
Section 10.10. Loans and Investments...............................................................-25-
SECTION 11. EVENTS OF DEFAULT............................................................................-26-
SECTION 12. REMEDIES ON DEFAULT, ETC.....................................................................-28-
Section 12.1. Acceleration........................................................................-28-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Section 12.2. Other Remedies......................................................................-29-
Section 12.3. Rescission..........................................................................-29-
Section 12.4. No Waivers or Election of Remedies, Expenses, etc...................................-30-
SECTION 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES................................................-30-
Section 13.1. Registration of Notes...............................................................-30-
Section 13.2. Transfer and Exchange of Notes......................................................-30-
Section 13.3. Replacement of Notes................................................................-31-
SECTION 14. PAYMENTS ON NOTES............................................................................-31-
Section 14.1. Place of Payment....................................................................-31-
Section 14.2. Home Office Payment.................................................................-31-
SECTION 15. EXPENSES, ETC................................................................................-32-
Section 15.1. Transaction Expenses................................................................-32-
Section 15.2. Survival............................................................................-32-
SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.................................-32-
SECTION 17. AMENDMENT AND WAIVER.........................................................................-33-
Section 17.1. Requirements........................................................................-33-
Section 17.2. Solicitation of Holders of Notes....................................................-33-
Section 17.3. Binding Effect, etc.................................................................-33-
Section 17.4. Notes Held by Company, etc..........................................................-34-
SECTION 18. NOTICES......................................................................................-34-
SECTION 19. REPRODUCTION OF DOCUMENTS....................................................................-34-
SECTION 20. CONFIDENTIAL INFORMATION.....................................................................-35-
SECTION 21. SUBSTITUTION OF PURCHASER....................................................................-36-
SECTION 22. MISCELLANEOUS................................................................................-36-
Section 22.1. Successors and Assigns..............................................................-36-
Section 22.2. Payments Due on Non-Business Days...................................................-36-
Section 22.3. Severability........................................................................-36-
Section 22.4. Construction........................................................................-36-
Section 22.5. Counterparts........................................................................-36-
Section 22.6. Governing Law.......................................................................-37-
</TABLE>
<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 Company 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(a) -- Form of 6.72% Senior Note, Series A, Due
September 1, 2003
EXHIBIT 1(b) -- Form of 6.95% Senior Note, Series B, Due
September 1, 2008
EXHIBIT 1.2 -- Form of Subsidiary Guaranty
EXHIBIT 4.4(a) -- Form of Opinion of Special Counsel for the
Company
EXHIBIT 4.4(b) -- Form of Opinion of Special Counsel for the
Purchasers
<PAGE>
SOS STAFFING SERVICES, INC.
1415 SOUTH MAIN STREET
SALT LAKE CITY, UTAH 84115
6.72% Senior Notes, Series A, due September 1, 2003
6.95% Senior Notes, Series B, due September 1, 2008
September 1, 1998
TO EACH OF THE PURCHASERS LISTED IN
THE ATTACHED SCHEDULE A:
Ladies and Gentlemen:
SOS Staffing Services, Inc., a Utah corporation (the "Company"), agrees
with you as follows:
SECTION 1. AUTHORIZATION OF NOTES; GUARANTIES.
Section 1.1. The Notes. The Company will authorize the issue and
sale of $5,000,000 aggregate principal amount of its 6.72% Senior Notes, Series
A, due September 1, 2003 (the "Series A Notes") and $30,000,000 of its 6.95%
Senior Notes, Series B, due September 1, 2008 (the "Series B Notes") (the Series
A Notes and the Series B Notes hereinafter are referred to collectively as 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 Series A 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 6.72% per annum. Each of the Series B 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 6.95% 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 Company 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 Series A Notes shall be substantially in the form set out in Exhibit
1(a) and the Series B Notes shall be substantially in the form set out in
Exhibit 1(b), with such changes therefrom, if any, as may be approved by you and
the Company. 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.
<PAGE>
Section 1.2. Subsidiary Guaranty. The Notes shall be
unconditionally guaranteed by the Guarantors pursuant to a Subsidiary Guaranty
dated as of the date hereof made by the Guarantors in favor of the holders of
the Notes substantially in the form of Exhibit 1.2 hereto (as amended, modified
and supplemented from time to time, the "Subsidiary Guaranty").
SECTION 2. SALE AND PURCHASE OF NOTES.
Subject to the terms and conditions of this Agreement, the Company will
issue and sell to you and you will purchase from the Company, 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 Company is
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 September 1, 1998 or on such other Business Day thereafter on or
prior to September 4, 1998 as may be agreed upon by the Company and you and the
Other Purchasers. At the Closing the Company 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 Company or its 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 Company to account number 054 004 2249 at
First Security Bank, N.A., 15 East 100 South, 2nd Floor, Salt Lake City, Utah
84111, ABA No. 124 000012. If at the Closing the Company 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:
<PAGE>
Section 4.1. Representations and Warranties. The representations
and warranties of the Company in this Agreement, the Other Agreements and the
Subsidiary Guaranty shall be correct when made and at the time of the Closing.
Section 4.2. Performance; No Default. The Company shall have
performed and complied with all agreements and conditions contained in this
Agreement required to be performed or complied with by it 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), no
Default or Event of Default shall have occurred and be continuing. Neither the
Company 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 hereof had such Sections applied since such date.
Section 4.3. Compliance Certificates.
(a) Officer's Certificate. The Company 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 Company and each Guarantor
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 Subsidiary Guaranty to which
such person is a party.
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 (1) John K. Morrison, Esq., General Counsel for the Company and the
Guarantors, covering matters 1 through 6 set forth in Exhibit 4.4(a) and (ii)
Parsons, Behle & Latimer, counsel for the Company and the Guarantors, covering
the matters 3 and 7 through 9 set forth in Exhibit 4.4(a) and covering such
other matters incident to the transactions contemplated hereby as you or your
counsel may reasonably request (and the Company and the Guarantors 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. Delivery of Documents. This Agreement, the Other
Agreements and the Subsidiary Guaranty 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
<PAGE>
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 Company 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.
Section 4.8. Payment of Special Counsel Fees. Without limiting the
provisions of Section 15.1, the Company 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 Company 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, the Company shall not have changed its jurisdiction of
incorporation or been a party to any merger or consolidation and shall not 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 COMPANY.
The Company represents and warrants to you that:
Section 5.1. Organization; Power and Authority. The Company and
each Guarantor is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and is duly
qualified as a foreign corporation 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. The Company 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
<PAGE>
transact, to execute and deliver this Agreement, the Other Agreements, the Notes
and the Subsidiary Guaranty and to perform the provisions hereof and thereof.
Section 5.2. Authorization, etc. This Agreement, the Other
Agreements, the Notes and the Subsidiary Guaranty have been duly authorized by
all necessary corporate action on the part of the Company and each Guarantor
that is a party thereto, and this Agreement, the Other Agreements and the
Subsidiary Guaranty constitute, and upon execution and delivery thereof each
Note will constitute, a legal, valid and binding obligation of the Company and
each Guarantor that is a party thereto enforceable against the Company and such
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 Company, through its agent, First
Chicago Capital Markets, Inc. has delivered to you and each Other Purchaser a
copy of a Confidential Offering Memorandum, dated July, 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 March 29, 1998 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 Company's Subsidiaries, 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 Company and
each other Subsidiary, (ii) of the Company's Affiliates, other than
Subsidiaries, and (iii) of the Company's directors and senior officers.
<PAGE>
(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 the Company and its Subsidiaries have been validly issued, are
fully paid and nonassessable and are owned by the Company 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 is a party to, or otherwise subject to any
legal restriction or any agreement (other than this Agreement, 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 the Company or any of its Subsidiaries that owns outstanding
shares of capital stock or similar equity interests of such Subsidiary.
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 the Company and each Guarantor of this
Agreement, the Other Agreements, the Notes and the Subsidiary Guaranty 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.
<PAGE>
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 the Company or any Guarantor of this Agreement, the Other
Agreements, the Notes or the Subsidiary Guaranty.
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 Company,
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. 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 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. The Company knows of no 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 Company and its Subsidiaries have paid all Federal income tax liabilities of
the Company and its Subsidiaries for all fiscal years up to and including the
fiscal year ended December 31, 1997.
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
<PAGE>
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 own or possess
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 the Company, 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 the Company, 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 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.
<PAGE>
(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 Company 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. Neither the Company
nor anyone acting on its 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 33 other Institutional Investors, each of
which has been offered the Notes at a private sale for investment. Neither the
Company 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 Company 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 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 5% 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 August 27, 1998, since which date
there has been no Material change in the amounts, interest rates,
sinking funds, installment 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
<PAGE>
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 of its Subsidiaries 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 Company hereunder nor its 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) all buildings on all real properties now owned, leased or
operated by the Company or any of its Subsidiaries are in compliance
<PAGE>
with applicable Environmental Laws, except where failure to comply
could not reasonably be expected to result in a Material Adverse
Effect.
Section 5.19. Solvency. The Company 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, the
Company 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 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 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
<PAGE>
(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.
<PAGE>
SECTION 7. INFORMATION AS TO COMPANY.,
Section 7.1. Financial and Business Information. The Company 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 of the
Company and its Subsidiaries for such quarter and for the
portion of the fiscal year ending with such quarter, and
(iii) changes in cash flows of the Company and its
Subsidiaries 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, provided that 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 105 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, and
(ii) the consolidated statements of income, changes
in shareholders' equity and cash flows of the Company and its
Subsidiaries, for such year,
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
<PAGE>
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 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 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 of its Subsidiaries 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 of its Subsidiaries with
the Securities and Exchange Commission and of all press releases and
other statements made available generally by the Company or any of its
Subsidiaries 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 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
<PAGE>
(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;
(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 Company to
perform its obligations hereunder and under the Notes and the Other
Agreements or the ability of any Guarantor to perform its obligations
under the Subsidiary Guaranty as from time to time may be reasonably
requested by any such holder of 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:
(a) Covenant Compliance -- the information (including detailed
calculations) required in order to establish whether the Company was in
compliance with the requirements of Section 10.3 through Section 10.8
and Section 10.10 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
<PAGE>
(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 of its Subsidiaries to comply with any Environmental Law),
specifying the nature and period of existence thereof and what action
the Company shall have taken or proposes to take with respect thereto.
Section 7.3. Inspection. The Company shall, and shall cause 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 each of 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 the Company, 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 Company 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 Company
authorizes (and shall cause 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.
(a) Scheduled Prepayments. On September 1, 2003, the Company
will pay all of the principal amount of the Series A Notes remaining,
if any. On September 1, 2002 and on each September 1 thereafter to and
including September 1, 2008 the Company will pay $4,285,714.29 of the
principal amount (or such lesser principal amount as shall then be
outstanding) of the Series B Notes at par and without payment of the
Make-Whole Amount or any premium. The Company will pay all of the
principal amount of the Series B Notes remaining, if any, on September
<PAGE>
1, 2008. Upon any partial prepayment of any series of the Notes
pursuant to Section 8.1(b) or Section 8.2 or purchase of any series of
the Notes permitted by Section 8.5 the principal amount of each
required prepayment of any series 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 any series of the Notes is reduced as a result of such
prepayment or purchase.
(b) Change of Control. Upon the occurrence of a Change of
Control, any holder, by written notice to the Company, may require, and
upon receipt of such written notice, the Company shall, prepay the
entire outstanding principal amount of the Notes held by such holder at
par and without payment of the Make-Whole Amount or any premium,
together with all accrued and unpaid interest on such principal amount
and all other sums which then are due and payable pursuant to this
Agreement, the Other Agreements and the Subsidiary Guaranty.
Section 8.2. Optional Prepayments with Make-Whole Amount. The
Company may, at its 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 10%
of the aggregate principal 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 Company 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 Company 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 Company 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
<PAGE>
prepaid in full shall be surrendered to the Company and canceled 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. The Company 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. The Company 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:
"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% per annum 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
<PAGE>
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.
SECTION 9. AFFIRMATIVE COVENANTS.
The Company covenants that so long as any of the Notes are outstanding:
Section 9.1. Compliance with Law. The Company will and will cause
each of its 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. The Company will and will cause each of its
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.
<PAGE>
Section 9.3. Maintenance of Properties. The Company will and will
cause each of its 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 Subsidiary 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 Company has
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. The Company will and will
cause each of its 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 the Company
or any Subsidiary, provided that neither the Company nor any Subsidiary need pay
any such tax or assessment or claims if (i) the amount, applicability or
validity thereof is contested by the Company or such Subsidiary on a timely
basis in good faith and in appropriate proceedings, and the Company or a
Subsidiary has established adequate reserves therefor in accordance with GAAP on
the books of the Company or such Subsidiary 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, the Company will, and will cause its Subsidiaries to, at all times
preserve and keep in full force and effect the corporate existence of itself and
each of its Subsidiaries (unless merged into the Company or a Wholly-Owned
Subsidiary) and all rights and franchises of the Company and its Subsidiaries
unless, in the good faith judgment of the Company, 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. New Subsidiaries. The Company will
(a) cause any Subsidiary acquired or established subsequent to
the date of this Agreement to deliver a Subsidiary Guaranty in favor of
the holders of the Notes and such other documentation as may be
requested by the holders of the Notes, in form and substance acceptable
to the holders of the Notes; and
(b) deliver to each holder of the Notes a revised Schedule 5.4
reflecting the changes referred to in subsection (a) of this Section.
SECTION 10. NEGATIVE COVENANTS.
The Company covenants that so long as any of the Notes are outstanding:
<PAGE>
Section 10.1. Transactions with Affiliates. The Company will not and
will not permit any Subsidiary 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 the Company or
another Subsidiary), except in the ordinary course and pursuant to the
reasonable requirements of the Company's or such Subsidiary's business and upon
fair and reasonable terms no less favorable to the Company or such Subsidiary
than would be obtainable in a comparable arm's-length transaction with a Person
not an Affiliate.
Section 10.2. Merger, Consolidation, etc. The Company shall not, and
will not permit any of its Subsidiaries to, consolidate with or merge with any
other 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 of the Company's
Subsidiaries with the Company or another Wholly-Owned Subsidiary;
(b) the successor formed by such consolidation or the survivor
of such merger or the Person that acquires by conveyance, transfer or
lease substantially all of the assets of the Company 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 the Company 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 and the Notes and (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
(c) immediately after giving effect to such transaction
(calculated on a pro forma basis as of the beginning of the testing
period to include the effect of any such transaction), no Default or
Event of Default shall have occurred and be continuing;
provided, however, any foregoing transaction which would result in a Change of
Control shall give rise to the right of each holder to require the Company to
prepay such holder's Notes in accordance with Section 8.1(b). No such
conveyance, transfer or lease of substantially all of the assets of the Company
shall have the effect of releasing the Company 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. The Company will not, and will not permit any
of its 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:
<PAGE>
(a) Liens for property taxes, assessments or other
governmental charges which are not yet due and payable or are being
contested in good faith by appropriate proceedings diligently
conducted;
(b) Liens resulting from any litigation or legal proceeding
incurred in the ordinary course which are being contested in good faith
by appropriate proceedings diligently conducted;
(c) 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 by appropriate proceedings diligently conducted;
(d) Liens incidental to the normal conduct of the Company's or
any Subsidiary's business incurred in the ordinary course, excluding
Liens incurred for the borrowing of money, which do not, in the
aggregate, materially impair the use of the Company's or any of its
Subsidiaries property in the operation of the business of the Company
and its Subsidiaries taken as a whole or the value of such property for
the purpose of such business;
(e) leases, subleases, easements, rights-of-way, restrictions
and other similar charges or encumbrances incidental to the ordinary
conduct of the Company's or any of its 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 to a Subsidiary
or Liens securing Indebtedness of a Subsidiary to the Company or to
another Subsidiary;
(g) Liens in existence at Closing;
(h) any Lien, other than in a Sale and Leaseback Transaction
(i) in property or rights relating thereto to secure any rights granted
with respect to such property in connection with the provision of all
or a part of the purchase price or cost of the construction of such
property created contemporaneously with, or within 180 days after, such
acquisition or the completion of such construction, (ii) existing in
property at the time of acquisition thereof, whether or not the
Indebtedness secured thereby is assumed by the Company or any of its
Subsidiaries so long as such Lien was not incurred in contemplation of
the acquisition of such property or (iii) in the property of an entity
at the time such entity is merged into or consolidated with the Company
or any of its Subsidiaries or at the time of a sale, lease or other
disposition of the properties of an entity as an entirety or
substantially as an entirety to the Company or any of its Subsidiaries
so long as such Lien was not incurred in contemplation of such;
provided, however, that in the case of each of clauses (i), (ii) and
(iii), the principal amount of the Indebtedness secured by such Lien
shall not exceed the lesser of (a) the cost to the Company or the
<PAGE>
Subsidiary of such property or (b) the fair market value (as determined
in good faith by the board of directors of the Company) of such
property;
(i) any Lien renewing, extending or refunding any Lien
permitted by sections (a) through (h) 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;
(j) for a period of 360 days following the acquisition by the
Company or any of its Subsidiaries of any entity which has granted a
Lien in such entity's accounts receivable or the acquisition of any
accounts receivable, any Lien in existence when acquired upon such
entity's accounts receivable or the accounts receivable acquired by the
Company or any of its Subsidiaries; and
(k) Liens which would not otherwise be permitted by clauses
(a) through (j) above, securing Indebtedness of either the Company or
any of its Subsidiaries, so long as all Priority Debt does not exceed
15% of Consolidated Net Worth.
Notwithstanding the foregoing provisions of this Section 10.3 other than Section
10.3(j), the Company will not, and will not permit any of its Subsidiaries to
grant or allow the continuance of any Lien upon its accounts receivable.
Section 10.4. Limitation on Total Indebtedness. The Company will not
permit the ratio of Consolidated Total Debt (i) as of the last day of any
quarter or (ii) at any time which there has been a draw under a letter of credit
or an instrument serving a similar function, on a pro forma basis as if such
draw had occurred on the first day of the quarter to Consolidated EBITDA for the
four quarter period ending on such last day to exceed 3.25 to 1.
Section 10.5. Limitation on Subsidiary Indebtedness. The Company
will not permit any of its Subsidiaries to incur, assume or permit to exist,
directly or indirectly, any Indebtedness, except:
(a Indebtedness created as a guarantor of the Company's
obligations hereunder and under the Notes;
(b Indebtedness created as a guarantor of the Company's
obligations 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;
<PAGE>
(d unsecured Indebtedness owing to the Company or another
Wholly-Owned Subsidiary of the Company; and
(e Indebtedness which would not otherwise be permitted by
clauses (a) through (d) above, provided that the sum of (i) such other
Indebtedness plus (ii) the aggregate unpaid principal amount of
Indebtedness of the Company and its Subsidiaries secured by Liens not
permitted by clauses (a) through (h) of Section 10.3 plus (iii) the
present value of all lease obligations arising as a result of a Sale
and Leaseback Transaction (the sum of the foregoing clauses (i), (ii)
and (iii) being referred to herein as "Priority Debt"), does not exceed
15% 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, the Company
will not, and will not permit any of its 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"):
(a) assets in any fiscal year having an aggregate value in
excess of 10% of the value of Total Assets determined as of the end of
the immediately preceding fiscal year; or
(b) assets in the period starting on the Closing Date through
the determination date having an aggregate value in excess of 25% of
the value of Total Assets determined as of the end of most recent
fiscal quarter prior to the date the Notes are paid in full;
provided, however, that (i) any Subsidiary of the Company may Transfer assets to
the Company or any Wholly-Owned Subsidiary and (ii) the Company and its
Subsidiaries may Transfer assets in excess of the limitations set forth above if
the proceeds of such asset sales are used within 360 days to (A) acquire other
property of a similar nature or (B) reduce Senior Indebtedness. Notwithstanding
the foregoing provisions of this Section 10.6 or the provisions of Section 10.3:
(i) neither the Company nor any of its Subsidiaries may Transfer any accounts
receivable; (ii) the Company will not, and will not permit any of its
Subsidiaries to grant or allow the continuance of any Lien upon its accounts
receivable; and (iii) in the event the Company or any of its Subsidiaries
acquires an entity which has granted a Lien in such entity's accounts receivable
or acquires any accounts receivable, the Company will cause such Lien to be
released within 360 days after the date of acquisition of such entity or such
accounts receivable, as applicable.
Section 10.7. Minimum Consolidated Net Worth. The Company will not
permit Consolidated Net Worth at any time to be less than the sum of (i)
$95,000,000 and (ii) 50% of the Consolidated Net Income earned for each fiscal
quarter beginning with the quarter ending September 30, 1998, to the extent such
Consolidated Net Income for such quarter is a positive number.
<PAGE>
Section 10.8. Minimum Fixed Charge Coverage. The Company will not
permit the ratio, as calculated on the last day of each fiscal quarter for the
four fiscal quarters then ended, of (i) Consolidated Earnings Available for
Fixed Charges for such period to (ii) Consolidated Fixed Charges for such period
to be less than 2.0 to 1.0. With respect to acquisitions and dispositions of
property, the limitation of this section shall be calculated on a pro forma
basis as of the beginning of the testing period to include the effect of any
acquired entity or the disposal of any entity.
Section 10.9. Line of Business. The Company will not, and will not
permit any of its 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 and Investments. The Company will not, and will
not permit any of its Subsidiaries to, make or commit to make any advance, loan,
extension of credit or capital contribution to or any other investment in any
Person, except for:
(a loans to or investments in one or more wholly-owned
Subsidiaries or any entity which become a Wholly-Owned Subsidiary
concurrently with such loan or investment;
(b investments existing on the date of Closing;
(c investments in (i) certificates of deposit issued by a
Canadian bank having a combined capital and surplus of at least
$100,000,000, (ii) certificates of deposit issued by a member bank of
the Federal Reserve System having a combined capital and surplus of at
least $100,000,000 and (iii) banker's acceptances, which, at the time
of investment, is rated "A3" or better by Moody's Investors Service,
Inc. or "A-" or better by Standard & Poor's Corporation;
(d investments in commercial or finance paper which, at the
time of investment, is rated "A2," "P2" or better by Moody's Investors
Service, Inc., or Standard & Poor's Corporation, respectively, or at
the equivalent rate by any of their respective successors;
(e investments in direct obligations of, or instruments
unconditionally guaranteed by, the United States of America, with a
maturity not exceeding one year;
(f any interests in any money market funds organized and
existing under the laws of and doing business in any state of the
United State of America, the investments of which, at the time of
investment, are restricted to the types specified in clauses (c), (d)
and (e) above;
(g investments held for the benefit of employees under a
Plan;
(h extensions of credit to customers of the Company or any of
its Subsidiaries made in the ordinary course of trade or business
consistent with prior practice; and
<PAGE>
(i loans to and investments not included in clauses (a)
through (h) above in an aggregate amount not exceeding 10% of
Consolidated Net Worth.
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 the Company or any Subsidiary 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 the Company or any Subsidiary 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 the Company defaults in the performance of or compliance
with any term contained in Sections 7.1(d) or in Sections 10.1 to
10.10, inclusive; or
(d the Company 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
Company 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 the Company or by any officer of the Company 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) the Company or any Subsidiary 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 at
least $5,000,000 beyond any period of grace provided with respect
thereto, or (ii) the Company or any Subsidiary is in default in the
performance of or compliance with any term of any evidence of any
Indebtedness in an aggregate outstanding principal amount of at least
$5,000,000 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), the Company or any Subsidiary has
become obligated to purchase or repay Indebtedness before its regular
-32-
<PAGE>
maturity or before its regularly scheduled dates of payment in an
aggregate outstanding principal amount of at least $5,000,000; or
(g the Company or any Material Subsidiary (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 the
Company or any of its Material 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 the Company or any of its Material Subsidiaries, or any such
petition shall be filed against the Company or any of its Material
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 the Company and its Subsidiaries and which judgments are not,
within 90 days after entry thereof, bonded, discharged or stayed
pending appeal, or are not discharged within 90 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 the Company 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 $1,000,000, (iv) the Company or any ERISA Affiliate shall
have incurred or is reasonably expected to incur 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, (v) the
Company or any ERISA Affiliate withdraws from any Multiemployer Plan,
or (vi) the Company or any Subsidiary establishes or amends any
employee welfare benefit plan that provides post-employment welfare
benefits in a manner that would increase the liability of the Company
-33-
<PAGE>
or any Subsidiary 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 with respect to the Company or any
Subsidiary 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 50% 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. The Company 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 Company
(except as herein specifically provided for), and that the provision
for payment of a Make-Whole Amount by the Company 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
<PAGE>
proceeding, whether for the specific performance of any agreement contained
herein or in any Note, or for an injunction against a 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 66-2/3% in principal amount of the Notes then
outstanding, by written notice to the Company, may rescind and annul any such
declaration and its consequences if (a) the Company has 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 Company under Section 15, the Company
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 Company shall 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 Company shall not be affected, by any notice or knowledge to the
contrary. The Company 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
<PAGE>
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 Company shall execute and deliver, at the Company's
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(a) or 1(b), as appropriate. Each such new Note shall be
dated and bear interest from the date 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 Company 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 Company of
evidence reasonably satisfactory to it 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 Company at its 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 Salt Lake City, Utah at the principal office of the
Company in such jurisdiction. The Company 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
<PAGE>
14.1 or in such Note to the contrary, the Company 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 Company 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 Company 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 Company 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 Company in exchange for a new Note or Notes pursuant to Section
13.2. The Company will afford the benefits of this Section 14.2 to any
Institutional Investor that is the direct or indirect transferee of any Note
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 Company 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 or any of its Subsidiaries or
in connection with any work-out or restructuring of the transactions
contemplated hereby and by the Notes. The Company 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 Company 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
<PAGE>
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 Company pursuant to this Agreement shall be
deemed representations and warranties of the Company under this Agreement.
Subject to the preceding sentence, this Agreement and the Notes embody the
entire agreement and understanding between you and the Company 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 Company 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 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 Company 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
Company 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 Company 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 Company
<PAGE>
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 Company
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 Company, 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 Company 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:
(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 Company
in writing, or
(iii if to the Company, to the Company at its address set
forth at the beginning hereof to the attention of the Treasurer, 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
<PAGE>
similar process and you may destroy any original document so reproduced. The
Company agrees and stipulates 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 Company 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 or any Subsidiary 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 or such Subsidiary, 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 or any
Subsidiary 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 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
<PAGE>
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 Company, 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 Company 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 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.
<PAGE>
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.
* * * * *
<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
Company, whereupon the foregoing shall become a binding agreement between you
and the Company.
Very truly yours,
SOS STAFFING SERVICES, INC.
By
----------------------------------------
Its
---------------------------------------
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
--------------------------------------
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
Company, whereupon the foregoing shall become a binding agreement between you
and the Company.
Very truly yours,
SOS STAFFING SERVICES, INC.
By
----------------------------------------
Its
---------------------------------------
The foregoing is hereby agreed
to as of the date thereof.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
By
-------------------------------------
Its
----------------------------------
By
-------------------------------------
Its
----------------------------------
<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
Company, whereupon the foregoing shall become a binding agreement between you
and the Company.
Very truly yours,
SOS STAFFING SERVICES, INC.
By
----------------------------------------
Its
---------------------------------------
The foregoing is hereby agreed
to as of the date thereof.
FARM BUREAU LIFE INSURAnCE COMPANY OF MICHIGAN
By
-------------------------------------
Its
----------------------------------
<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
Company, whereupon the foregoing shall become a binding agreement between you
and the Company.
Very truly yours,
SOS STAFFING SERVICES, INC.
By
----------------------------------------
Its
---------------------------------------
The foregoing is hereby agreed
to as of the date thereof.
FARM BUREAU MUTUAL INSURaNCE COMPANY OF MICHIGAN
By
-------------------------------------
Its
----------------------------------
<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
Company, whereupon the foregoing shall become a binding agreement between you
and the Company.
Very truly yours,
SOS STAFFING SERVICES, INC.
By
----------------------------------------
Its
---------------------------------------
The foregoing is hereby agreed
to as of the date thereof.
THE CANADA LIFE ASSURANCE COMPANY
By
-------------------------------------
Its
----------------------------------
<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
Company, whereupon the foregoing shall become a binding agreement between you
and the Company.
Very truly yours,
SOS STAFFING SERVICES, INC.
By
----------------------------------------
Its
---------------------------------------
The foregoing is hereby agreed
to as of the date thereof.
CANADA LIFE INSURANCE COMPANY OF NEW YORK
By
-------------------------------------
Its
----------------------------------
<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
Company, whereupon the foregoing shall become a binding agreement between you
and the Company.
Very truly yours,
SOS STAFFING SERVICES, INC.
By
----------------------------------------
Its
---------------------------------------
The foregoing is hereby agreed
to as of the date thereof.
CANADA LIFE INSURANCe COMPANY OF AMERICA
By
-------------------------------------
Its
----------------------------------
<PAGE>
INFORMATION RELATING TO PURCHASERS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------- ---- ------------------------------------------
<S> <C> <C>
PRINCIPAL AMOUNT OF
NAME AND ADDRESS OF PURCHASER NOTES TO BE PURCHASED
- -------------------------------------------------------------------- ---- ------------------------------------------
- -------------------------------------------------------------------- ---- ------------------------------------------
JACKSON NATIONAL LIFE INSURANCE COMPANY $15,000,000 (Series B)
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 "SOS Staffing Services 6.95% Senior
Note, Series B, due September 1, 2008, PPN
___________, 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/
Joseph Dimberio
Phone: (312) 634-2500
Fax: (312) 634-0054
- -------------------------------------------------------------------- ---- ------------------------------------------
- -------------------------------------------------------------------- ---- ------------------------------------------
Interest and principal payment notices should also be faxed to:
Oscell Owens, Northern Trust
802 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
Phone: (312) 634-2504
Fax: (312) 634-0054
- -------------------------------------------------------------------- ---- ------------------------------------------
- -------------------------------------------------------------------- ---- ------------------------------------------
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY $10,000,000 (Series B)
8515 East Orchard Road
3rd Floor, Tower 2
Englewood, Colorado 80111
Tax I.D. #84-0467907
(1) All payments by wire transfer of immediately available
funds to:
ABA #091-000-019 NW MPLS/TRUST CLEARING
ACCT #08-40-245 ATTN: Acct #12468800
Special Instructions:
1) security description (PPN#)
2) allocation of payment between
principal and interest, and
3) confirmation of principal balance
- -------------------------------------------------------------------- ---- ------------------------------------------
- -------------------------------------------------------------------- ---- ------------------------------------------
(2) All notices of payments and written confirmation of such wire
transfers:
NORWEST BANK MINNESOTA, N.A.
733 Marquette Avenue, Investors Bldg., 5th floor
Minneapolis, Minnesota 55479-0047
Attention: Income Collections
- -------------------------------------------------------------------- ---- ------------------------------------------
- -------------------------------------------------------------------- ---- ------------------------------------------
(3) All other communications/financial statements, trustee reports, etc.:
GREAT-WEST LIFE &ANNUITY INSURANCE COMPANY
8515 East Orchard Road
3rd Floor, Tower 2
Englewood, Colorado 80111
Attention: Corporate Finance Investments
Telecopier: (303) 689-6193
- -------------------------------------------------------------------- ---- ------------------------------------------
- -------------------------------------------------------------------- ---- ------------------------------------------
(4) Physical delivery of securities - new issue:
NORWEST BANK MINNESOTA, N.A.
733 Marquette Avenue, Investors Bldg.,
5th floor
Minneapolis, Minnesota 55479-0047
Attention: Security Clearance
- -------------------------------------------------------------------- ---- ------------------------------------------
- -------------------------------------------------------------------- ---- ------------------------------------------
FARM BUREAU LIFE INSURANCE COMPANY OF MICHIGAN $3,000,000 (Series B)
7373 West Saginaw
Lansing, Michigan 48917
Tax I.D. #38-6056370
(1) Wire instructions for income:
COMERICA BANK
ABA #072000096
Credit Trust Operations
Fixed Income Unit
Account #21585-98530
(Security Name)
(Principal __________ Interest__________)
- -------------------------------------------------------------------- ---- ------------------------------------------
- -------------------------------------------------------------------- ---- ------------------------------------------
(2) Delivery instructions for the securities:
COMERICA BANK
411 West Lafayette Street
Detroit, Michigan 48226
Attention: Daniel J. Molnar - MC3462
- -------------------------------------------------------------------- ---- ------------------------------------------
- -------------------------------------------------------------------- ---- ------------------------------------------
(3) Address to use for any notices, etc.
FARM BUREAU LIFE INSURANCE COMPANY OF MICHIGAN
P. O. Box 30400
Lansing, Michigan 48909
Attention: Steven R. Harkness -
Investment Division
Overnight address:
7373 West Saginaw
Lansing, Michigan 48917
Telephone: (517) 323-6670
Facsimile: (517) 323-6554
with copies to:
COMERICA BANK
Trust Operations
P. O. Box 75000
Detroit, Michigan 48275-3454
and
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
8515 East Orchard Road
3rd Floor, Tower 2
Englewood, Colorado 80111
Attention: Corporate Finance Investments
- -------------------------------------------------------------------- ---- ------------------------------------------
- -------------------------------------------------------------------- ---- ------------------------------------------
FARM BUREAU MUTUAL INSURANCE COMPANY OF MICHIGAN $2,000,000 (Series B)
7373 West Saginaw
Lansing, Michigan 48917
Tax I.D. #38-1316179
(1) Wire instructions for income:
COMERICA BANK
ABA #072000096
Credit Trust Operations
Fixed Income Unit
Account #21585-98530
(Security Name)
(Principal __________ Interest__________)
- -------------------------------------------------------------------- ---- ------------------------------------------
- -------------------------------------------------------------------- ---- ------------------------------------------
(2) Delivery instructions for the securities:
COMERICA BANK
411 West Lafayette Street
Detroit, Michigan 48226
Attention: Daniel J. Molnar - MC3462
- -------------------------------------------------------------------- ---- ------------------------------------------
- -------------------------------------------------------------------- ---- ------------------------------------------
(3) Address to use for any notices, etc.
FARM BUREAU MUTUAL INSURANCE COMPANY OF MICHIGAN
c/o Farm Bureau Life Insurance Company of
Michigan
P. O. Box 30400
Lansing, Michigan 48909
Attention: Steven R. Harkness -
Investment Division
Overnight address:
7373 West Saginaw
Lansing, Michigan 48917
Telephone: (517) 323-6670
Facsimile: (517) 323-6554
with copies to:
COMERICA BANK
Trust Operations
P. O. Box 75000
Detroit, Michigan 48275-3454
and
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
8515 East Orchard Road
3rd Floor, Tower 2
Englewood, Colorado 80111
Attention: Corporate Finance Investments
- -------------------------------------------------------------------- ---- ------------------------------------------
- -------------------------------------------------------------------- ---- ------------------------------------------
THE CANADA LIFE ASSURANCE COMPANY $2,000,000 (Series A)
Investment Division
330 University Avenue
Toronto, Ontario M5G 1R8
Tax I.D. #38-0397420
- -------------------------------------------------------------------- ---- ------------------------------------------
- -------------------------------------------------------------------- ---- ------------------------------------------
Register Notes in the name of J. Romeo & Co.:
(1) Courier/Uniformed Messengers:
CHASE MANHATTAN BANK
4 New York Plaza - 11th floor
Receive Window
New York, New York 10004-2477
Attention: Larry Zimmer
Telephone: (212) 623-0987
for:
THE CANADA LIFE ASSURANCE COMPANY
Trust Account No. G52708
- -------------------------------------------------------------------- ---- ------------------------------------------
- -------------------------------------------------------------------- ---- ------------------------------------------
(2) Make all payments regarding the Note(s) by bank wire transfer of
Federal or other immediately available funds:
For regular principal and interest:
CHASE MANHATTAN BANK
ABA 021-000-021
A/C #900-9-000200
Trust Account No. G52708, The Canada Life
Assurance Company
Attention: Bond Interest
Refer to CUSIP #, name of issuer, rate, maturity date, type of
security, whether principal and/or interest and due date.
For call or maturity:
CHASE MANHATTAN BANK
ABA 021-000-021
A/C #900-9-000192
Trust Account No. G52708, The Canada Life
Assurance Company
Attention: Doll Balbadar
Refer to CUSIP #, name of issuer, rate, maturity date,
whether principal and/or interest and effective date of
call or maturity.
- -------------------------------------------------------------------- ---- ------------------------------------------
- -------------------------------------------------------------------- ---- ------------------------------------------
(3) send notices of payments and written confirmation of wire transfers:
CHASE MANHATTAN BANK
North America Insurance
3 Chase MetroTech Centre - 6th floor
Brooklyn, New York 11245
Attention: Doll Balbadar
copy to:
THE CANADA LIFE ASSURANCE COMPANY
330 University Avenue, SP-12
Toronto, Ontario, Canada M5G 1R8
Attention: Supervisor, Securities Accounting
- -------------------------------------------------------------------- ---- ------------------------------------------
- -------------------------------------------------------------------- ---- ------------------------------------------
(4) Send financial statements and all other communications:
THE CANADA LIFE ASSURANCE COMPANY
Corporate Treasury, SP-11
330 University Avenue
Toronto, Ontario, Canada M5G 1R8
Attention: Brian Lynch, Associate, Treasurer,
U.S. Private Placements
- -------------------------------------------------------------------- ---- ------------------------------------------
- -------------------------------------------------------------------- ---- ------------------------------------------
CANADA LIFE INSURANCE COMPANY OF NEW YORK $1,000,000 (Series A)
Investment Division
330 University Avenue
Toronto, Ontario, Canada M5G 1R8
Tax I.D. #13-2690792
- -------------------------------------------------------------------- ---- ------------------------------------------
- -------------------------------------------------------------------- ---- ------------------------------------------
Register Notes in the name of J. Romeo & Co.:
(1) Courier/Uniformed Messengers:
CHASE MANHATTAN BANK
4 New York Plaza - 11th floor
Receive Window
New York, New York 10004-2477
Attention: Larry Zimmer
Telephone: (212) 623-0987
for:
CANADA LIFE INSURANCE COMPANY OF NEW YORK
Trust Account No. G52685
- -------------------------------------------------------------------- ---- ------------------------------------------
- -------------------------------------------------------------------- ---- ------------------------------------------
(2) Make all payments regarding the Note(s) by bank wire transfer of
Federal or other immediately available funds:
For regular principal and interest:
CHASE MANHATTAN BANK
ABA 021-000-021
A/C #900-9-000200
For A/C #G52685, Canada Life Insurance Company
of New York
Attention: Bond Interest
Refer to CUSIP #, name of issuer, rate, maturity date,
type of security, whether principal and/or interest and
due date.
- -------------------------------------------------------------------- ---- ------------------------------------------
- -------------------------------------------------------------------- ---- ------------------------------------------
For call or maturity:
CHASE MANHATTAN BANK
ABA 021-000-021
A/C #900-9-000192
Trust Account #G52685, Canada Life Insurance
Company of New York
Attention: Doll Balbadar
Refer to CUSIP #, name of issuer, rate, maturity date, whether
principal and/or interest and effective date of call or maturity.
- -------------------------------------------------------------------- ---- ------------------------------------------
- -------------------------------------------------------------------- ---- ------------------------------------------
(3) send notices of payments and written confirmation of wire transfers:
CHASE MANHATTAN BANK
North America Insurance
3 Chase MetroTech Centre - 6th floor
Brooklyn, New York 11245
Attention: Doll Balbadar
copy to:
THE CANADA LIFE ASSURANCE COMPANY
330 University Avenue, SP-12
Toronto, Ontario, Canada M5G 1R8
Attention: Supervisor, Securities Accounting
- -------------------------------------------------------------------- ---- ------------------------------------------
- -------------------------------------------------------------------- ---- ------------------------------------------
(4) Send financial statements and all other communications:
THE CANADA LIFE ASSURANCE COMPANY
Corporate Treasury, SP-11
330 University Avenue
Toronto, Ontario, Canada M5G 1R8
Attention: Brian Lynch, Associate, Treasurer,
U.S. Private Placements
- -------------------------------------------------------------------- ---- ------------------------------------------
- -------------------------------------------------------------------- ---- ------------------------------------------
CANADA LIFE INSURANCE COMPANY OF AMERICA $2,000,000 (Series A)
Investment Division
330 University Avenue
Toronto, Ontario, Canada M5G 1R8
Tax I.D. #38-2816473
- -------------------------------------------------------------------- ---- ------------------------------------------
- -------------------------------------------------------------------- ---- ------------------------------------------
Register Notes in the name of J. Romeo & Co.:
(1) Courier/Uniformed Messengers:
CHASE MANHATTAN BANK
4 New York Plaza - 11th floor
Receive Window
New York, New York 10004-2477
Attention: Larry Zimmer
Telephone: (212) 623-0987
for:
CANADA LIFE INSURANCE COMPANY OF AMERICA
Trust Account No. G52709
- -------------------------------------------------------------------- ---- ------------------------------------------
- -------------------------------------------------------------------- ---- ------------------------------------------
(2) Make all payments regarding the Note(s) by bank wire transfer of
Federal or other immediately available funds:
For regular principal and interest:
CHASE MANHATTAN BANK
ABA 021-000-021
A/C #900-9-000200
Trust Account No. G52709, Canada Life Insurance
Company of America
Attention: Doll Balbadar
Refer to CUSIP #, name of issuer, rate, maturity date, type of
security, whether principal and/or interest and due date.
For call or maturity:
CHASE MANHATTAN BANK
ABA 021-000-021
A/C #900-9-000192
Trust Account No. G52709, Canada Life Insurance
Company of America
Attention: Doll Balbadar
Refer to CUSIP #, name of issuer, rate, maturity date, whether
principal and/or interest and effective date of call or
maturity.
- -------------------------------------------------------------------- ---- ------------------------------------------
- -------------------------------------------------------------------- ---- ------------------------------------------
(3) send notices of payments and written confirmation of wire transfers:
CHASE MANHATTAN BANK
North America Insurance
3 Chase MetroTech Centre - 6th floor
Brooklyn, New York 11245
Attention: Doll Balbadar
copy to:
THE CANADA LIFE ASSURANCE COMPANY
330 University Avenue, SP-12
Toronto, Ontario, Canada M5G 1R8
Attention: Supervisor, Securities Accounting
- -------------------------------------------------------------------- ---- ------------------------------------------
- -------------------------------------------------------------------- ---- ------------------------------------------
(4) Send financial statements and all other communications:
THE CANADA LIFE ASSURANCE COMPANY
Corporate Treasury, SP-11
330 University Avenue
Toronto, Ontario, Canada M5G 1R8
Attention: Brian Lynch, Associate, Treasurer,
U.S. Private Placements
- -------------------------------------------------------------------- ---- ------------------------------------------
</TABLE>
<PAGE>
SCHEDULE B
(to Note Purchase Agreement)
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 any Person (other than a Subsidiary of the Company)
which (a) directly or indirectly through one or more intermediaries controls or
is controlled by, or is under common control with, the Company, (b) which
beneficially owns or holds 10% or more of any class of the Voting Stock of the
Company, or (c) of which 10% or more of the Voting Stock (or in the case of a
Person which is not a corporation, 10% or more of the equity interest) is
beneficially owned or held by the Company, a Subsidiary of the Company or an
Affiliate of the Company or a Subsidiary 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 Chicago, Illinois or Salt Lake City, Utah 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.
"Change of Control" occurs when any Person or any Persons acting
together which would constitute a Group together with any Affiliates or Related
Persons thereof shall at any time Beneficially Own more than 35% of the
aggregate voting power of all classes of Voting Stock of the Company. As used
herein (a) "Beneficially Own" shall mean "beneficially own" as defined in Rule
13d-3 of the Securities Exchange Act of 1934, as amended, or any successor
provision thereto; provided, however, that, for purposes of this definition, a
Person shall not be deemed to Beneficially Own securities tendered pursuant to a
tender or exchange offer made by or on behalf of such Person or any of such
Person's Affiliates until such tendered securities are accepted for purchase or
exchange; (b) "Group" shall mean a "group" for purposes of Section 13(d) of the
Securities Exchange Act of 1934, as amended; and (c) "Related Person" of any
Person shall mean any other Person owning (1) 5% or more of the outstanding
common stock of such Person or (2) 5% or more of the Voting Stock of such
Person.
"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.
"Company" means SOS Staffing Services, Inc., a Utah corporation.
<PAGE>
6 SCHEDULE B
(to Note Purchase Agreement)
B-8
"Confidential Information" is defined in Section 20.
"Consolidated Earnings Available for Fixed Charges" means, with respect
to any period, Consolidated Net Income for such period, as determined in
accordance with GAAP, plus the sum of all amounts deducted in the computation
thereof on account of (a) Consolidated Fixed Charges; (b) income taxes; and (c)
depreciation and amortization for the most recently completed four fiscal
quarters. With respect to the acquisition or disposition of property, the effect
of such acquisition or disposition shall be calculated on a pro forma basis
giving effect solely to the actual historical results of the assets or entity
acquired or disposed of and adjustments for discontinued compensation of the
principals of the entity acquired in the form of salary, commission, bonus
and/or any other employment related personal expense or other discontinued
expenses directly related to the principals as of the beginning of the four
quarter testing period to determine Consolidated EBITDA.
"Consolidated EBITDA" means for any four quarter period, the
Consolidated Net Income for such period plus (i) Federal, state and local income
tax expense paid or accrued for as a liability for such period, (ii)
depreciation and amortization expenses and (iii) Interest Expense for the
Company and its Subsidiaries. With respect to the acquisition or disposition of
property, the effect of such acquisition or disposition shall be calculated on a
pro forma basis giving effect solely to the actual historical results of the
assets or entity acquired or disposed of and adjustments for discontinued
compensation of the principals of the entity acquired in the form of salary,
commission, bonus and/or any other employment related personal expense or other
discontinued expenses directly related to the principals as of the beginning of
the four quarter testing period to determine Consolidated EBITDA.
"Consolidated Fixed Charges" for any period shall mean the sum of (i)
Interest Expense for such period and (ii) operating lease expense of the Company
and its Subsidiaries for such period.
"Consolidated Net Income" means the net earnings of the Company and its
Subsidiaries determined on a consolidated basis in accordance with GAAP for the
most recently completed four quarters.
"Consolidated Net Worth" means for any Person, the sum of all capital
stock, including preferred stock, paid-in-capital and retained earnings as set
forth in the audited financial statements according to GAAP.
"Consolidated Total Debt" shall mean as of the date of determination,
the sum of all Indebtedness of the Company and its Subsidiaries after
eliminations determined on a consolidated basis in accordance with GAAP.
"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.
<PAGE>
"Default Rate" means that rate of interest that is the greater of (i)
2% per annum above the rate of interest stated in clause (a) of the first
paragraph of the Notes or (ii) 2% over the rate of interest publicly announced
by The First National Bank of Chicago in Chicago, Illinois 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.
"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
July 11, 1996 among the Company, First Security Bank, N.A. and NBD Bank, as
amended, modified, supplemented or restated from time to time.
"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.
<PAGE>
"Guarantors" means, collectively, Bedford Consultants, Inc., a
California corporation, Computer Professional Resources, Inc., a Kansas
corporation, ServCom Staff Management, Inc., a Utah corporation, SOS Collection
Services, Inc., an Arizona corporation, SOS Information Technology Company, a
Utah corporation, and Wolfe & Associates, Inc., a New Mexico corporation, and
any other Person that may, after the date hereof, execute a Subsidiary Guaranty.
"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,
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,
<PAGE>
(a) its liabilities for borrowed money (including, without
limitation, under the Notes and the Existing Bank Credit Agreement)
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 to the extent such liabilities should
be recorded on such Person's balance sheet in accordance with GAAP
(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);
(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 thereunder; and
(f) any Guaranty of such Person with respect to liabilities of
a type described in any of clauses (a) through (e) hereof.
Indebtedness of any Person shall include all obligations of such Person of the
character described in clauses (a) through (f) 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.
"Interest Expense" for any period shall mean interest expense of the
Company and its Subsidiaries for such period, as defined according to GAAP.
"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
<PAGE>
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 the Company
to perform its obligations under this Agreement and the Notes, or (c) the
validity or enforceability of this Agreement or the Notes.
"Material Subsidiary" means any one or more Subsidiary, alone or
together, (a) with a Consolidated Net Worth of 5% or more of the Company's and
all Subsidiaries' aggregate Consolidated Net Worth or (b) which generated 5% or
more of the Company's and all Subsidiaries' Consolidated EBITDA.
"Memorandum" is defined in Section 5.3.
"Multiemployer Plan" means any Plan that is a "multiemployer 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,
<PAGE>
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 66-2/3%
in principal amount of the Notes at the time outstanding (exclusive of Notes
then owned by the Company or any of its Affiliates).
"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.
"Sale and Leaseback Transaction" shall mean a transaction or series of
transactions pursuant to which the Company or any Subsidiary shall sell or
transfer to any Person (other than the Company or a 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, such Person 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.
"Senior Financial Officer" means the chief financial officer, principal
accounting officer, treasurer or comptroller of the Company.
"Senior Indebtedness" all Indebtedness owed by the Company and any of
its Subsidiaries pursuant to the Existing Bank Credit Facility and the Notes.
"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
<PAGE>
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 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 Company and its Subsidiaries.
"Voting Stock" means capital stock of any class or classes of a
corporation having power under ordinary circumstances to vote for the election
of members of the board of directors of such corporation or Person performing
similar functions (irrespective of whether or not at the time stock of any of
the class or classes shall have or might have special voting power or rights by
reason of the happening of any contingency).
"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.
<PAGE>
FORM OF SERIES A NOTE
SOS STAFFING SERVICES, INC.
6.72% SENIOR NOTE DUE SEPTEMBER 1, 2003
No. [________] September 1, 1998
$[_______] PNN[____________]
FOR VALUE RECEIVED, the Undersigned, SOS STAFFING SERVICES, INC.
(herein called the "Company"), a corporation organized and existing under the
laws of the State of Utah, hereby promises to pay to [_______________], or
registered assigns, the principal sum of FIVE MILLION DOLLARS on September 1,
2003, 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 6.72% per annum from
the date hereof, payable semiannually, on the 1st day of March and September in
each year, commencing with March 1, 1999, 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) 8.72% or (ii) 2.0% over the
rate of interest publicly announced by The First National Bank of Chicago from
time to time in Chicago, Illinois 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 First National Bank of Chicago in Chicago, Illinois or at such
other place as the Company 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 Notes (herein called the
"Notes") issued pursuant to separate Note Purchase Agreements, dated as of
September 1, 1998 (as from time to time amended, the "Note Purchase
Agreements"), between the Company 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(a)
(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.
The Company will make required prepayments of principal on the dates
and in the amounts specified in the Note Purchase Agreements. This Note is also
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.
SOS STAFFING SERVICES, INC.
By
----------------------------------------
[Title]
EXHIBIT 1(a)
(to Note Purchase Agreement)
1(a)-2
<PAGE>
FORM OF SERIES B NOTE
SOS STAFFING SERVICES, INC.
6.95% SENIOR NOTE, SERIES B, DUE SEPTEMBER 1, 2008
No. [________] September 1, 1998
$[_________________] PNN[____________]
FOR VALUE RECEIVED, the Undersigned, SOS STAFFING SERVICES, INC.
(herein called the "Company"), a corporation organized and existing under the
laws of the State of Utah, hereby promises to pay to [_______________], or
registered assigns, the principal sum of FIFTEEN MILLION DOLLARS on September 1,
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 6.95% per annum from
the date hereof, payable semiannually, on the 1st day of March and September in
each year, commencing with March 1, 1999, 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) 8.95% or (ii) 2.0% over the
rate of interest publicly announced by The First National Bank of Chicago from
time to time in Chicago, Illinois 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 The First National Bank of Chicago in
Chicago, Illinois or at such other place as the Company 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 Notes (herein called the
"Notes") issued pursuant to separate Note Purchase Agreements, dated as of
September 1, 1998 (as from time to time amended, the "Note Purchase
Agreements"), between the Company 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(b)
(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.
The Company will make required prepayments of principal on the dates
and in the amounts specified in the Note Purchase Agreements. This Note is also
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.
SOS STAFFING SERVICES, INC.
By
----------------------------------------
[Title]
EXHIBIT 4.4(b)
(to Note Purchase Agreement)
<PAGE>
FORM OF OPINION OF SPECIAL COUNSEL
TO THE COMPANY
Matters to Be Covered in
Opinion of Special Counsel to the Company
-----------------------------------------
1. Each of the Company and its 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 and its 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(b)
(to Note Purchase Agreement)
<PAGE>
FORM OF OPINION OF SPECIAL COUNSEL
TO THE PURCHASERS
[TO BE PROVIDED ON A CASE BY CASE BASIS]
EXHIBIT 4.4(b)
(to Note Purchase Agreement)
<PAGE>
SOS STAFFING SERVICES, INC.
6.72% SENIOR NOTE, SERIES A, DUE SEPTEMBER 1, 2003
September 1, 1998
$2,000,000 PNN 78462XA*5
FOR VALUE RECEIVED, the Undersigned, SOS STAFFING SERVICES, INC.
(herein called the "Company"), a corporation organized and existing under the
laws of the State of Utah, hereby promises to pay to The Canada Life Assurance
Company, or registered assigns, the principal sum of TWO MILLION DOLLARS on
September 1, 2003, 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 6.72% per
annum from the date hereof, payable semiannually, on the 1st day of March and
September in each year, commencing with March 1, 1999, 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) 8.72% or (ii)
2.0% over the rate of interest publicly announced by The First National Bank of
Chicago from time to time in Chicago, Illinois 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 First National Bank of Chicago in Chicago, Illinois or at such
other place as the Company 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 Notes (herein called the
"Notes") issued pursuant to separate Note Purchase Agreements, dated as of
September 1, 1998 (as from time to time amended, the "Note Purchase
Agreements"), between the Company 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.
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.
(393284.1)
<PAGE>
The Company will make required prepayments of principal on the dates
and in the amounts specified in the Note Purchase Agreements. This Note is also
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.
SOS STAFFING SERVICES, INC.
By
----------------------------------------
Its
---------------------------------------
<PAGE>
SOS STAFFING SERVICES, INC.
6.72% SENIOR NOTE, SERIES A, DUE SEPTEMBER 1, 2003
September 1, 1998
$2,000,000 PNN 78462XA*5
FOR VALUE RECEIVED, the Undersigned, SOS STAFFING SERVICES, INC.
(herein called the "Company"), a corporation organized and existing under the
laws of the State of Utah, hereby promises to pay to the Canada Life Insurance
Company of America, or registered assigns, the principal sum of TWO MILLION
DOLLARS on September 1, 2003, 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
6.72% per annum from the date hereof, payable semiannually, on the 1st day of
March and September in each year, commencing with March 1, 1999, 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) 8.72% or (ii) 2.0% over the rate of interest publicly announced
by The First National Bank of Chicago from time to time in Chicago, Illinois 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 First National Bank of Chicago in Chicago, Illinois or at such
other place as the Company 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 Notes (herein called the
"Notes") issued pursuant to separate Note Purchase Agreements, dated as of
September 1, 1998 (as from time to time amended, the "Note Purchase
Agreements"), between the Company 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.
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.
<PAGE>
The Company will make required prepayments of principal on the dates
and in the amounts specified in the Note Purchase Agreements. This Note is also
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.
STAFFING SERVICES, INC.
By
----------------------------------------
Its
---------------------------------------
<PAGE>
SOS STAFFING SERVICES, INC.
6.72% SENIOR NOTE, SERIES A, DUE SEPTEMBER 1, 2003
September 1, 1998
$1,000,000 PNN 78462XA*5
FOR VALUE RECEIVED, the Undersigned, SOS STAFFING SERVICES, INC.
(herein called the "Company"), a corporation organized and existing under the
laws of the State of Utah, hereby promises to pay to the Canada Life Insurance
Company of New York, or registered assigns, the principal sum of ONE MILLION
DOLLARS on September 1, 2003, 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
6.72% per annum from the date hereof, payable semiannually, on the 1st day of
March and September in each year, commencing with March 1, 1999, 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) 8.72% or (ii) 2.0% over the rate of interest publicly announced
by The First National Bank of Chicago from time to time in Chicago, Illinois 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 First National Bank of Chicago in Chicago, Illinois or at such
other place as the Company 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 Notes (herein called the
"Notes") issued pursuant to separate Note Purchase Agreements, dated as of
September 1, 1998 (as from time to time amended, the "Note Purchase
Agreements"), between the Company 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.
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.
<PAGE>
The Company will make required prepayments of principal on the dates
and in the amounts specified in the Note Purchase Agreements. This Note is also
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.
SOS STAFFING SERVICES, INC.
By
----------------------------------------
Its
---------------------------------------
<PAGE>
SOS STAFFING SERVICES, INC.
6.95% SENIOR NOTE, SERIES B, DUE SEPTEMBER 1, 2008
September 1, 1998
$15,000,000 PNN 78462XA@3
FOR VALUE RECEIVED, the Undersigned, SOS STAFFING SERVICES, INC.
(herein called the "Company"), a corporation organized and existing under the
laws of the State of Utah, hereby promises to pay to Jackson National Life
Insurance Company, or registered assigns, the principal sum of FIFTEEN MILLION
DOLLARS on September 1, 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
6.95% per annum from the date hereof, payable semiannually, on the 1st day of
March and September in each year, commencing with March 1, 1999, 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) 8.95% or (ii) 2.0% over the rate of interest publicly announced
by The First National Bank of Chicago from time to time in Chicago, Illinois 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 The First National Bank of Chicago in
Chicago, Illinois or at such other place as the Company 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 Notes (herein called the
"Notes") issued pursuant to separate Note Purchase Agreements, dated as of
September 1, 1998 (as from time to time amended, the "Note Purchase
Agreements"), between the Company 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.
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.
<PAGE>
The Company will make required prepayments of principal on the dates
and in the amounts specified in the Note Purchase Agreements. This Note is also
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.
SOS STAFFING SERVICES, INC.
By
----------------------------------------
Its
---------------------------------------
<PAGE>
SOS STAFFING SERVICES, INC.
6.95% SENIOR NOTE, SERIES B, DUE SEPTEMBER 1, 2008
September 1, 1998
$10,000,000 PNN 78462XA@3
FOR VALUE RECEIVED, the Undersigned, SOS STAFFING SERVICES, INC.
(herein called the "Company"), a corporation organized and existing under the
laws of the State of Utah, hereby promises to pay to The Great-West Life &
Annuity Company, or registered assigns, the principal sum of TEN MILLION DOLLARS
on September 1, 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 6.95% per
annum from the date hereof, payable semiannually, on the 1st day of March and
September in each year, commencing with March 1, 1999, 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) 8.95% or (ii)
2.0% over the rate of interest publicly announced by The First National Bank of
Chicago from time to time in Chicago, Illinois 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 The First National Bank of Chicago in
Chicago, Illinois or at such other place as the Company 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 Notes (herein called the
"Notes") issued pursuant to separate Note Purchase Agreements, dated as of
September 1, 1998 (as from time to time amended, the "Note Purchase
Agreements"), between the Company 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.
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.
<PAGE>
The Company will make required prepayments of principal on the dates
and in the amounts specified in the Note Purchase Agreements. This Note is also
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.
SOS STAFFING SERVICES, INC.
By
----------------------------------------
Its
---------------------------------------
<PAGE>
SOS STAFFING SERVICES, INC.
6.95% SENIOR NOTE, SERIES B, DUE SEPTEMBER 1, 2008
September 1, 1998
$3,000,000 PNN 78462XA@3
FOR VALUE RECEIVED, the Undersigned, SOS STAFFING SERVICES, INC.
(herein called the "Company"), a corporation organized and existing under the
laws of the State of Utah, hereby promises to pay to Farm Bureau Life Insurance
Company of Michigan, or registered assigns, the principal sum of THREE MILLION
DOLLARS on September 1, 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
6.95% per annum from the date hereof, payable semiannually, on the 1st day of
March and September in each year, commencing with March 1, 1999, 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) 8.95% or (ii) 2.0% over the rate of interest publicly announced
by The First National Bank of Chicago from time to time in Chicago, Illinois 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 The First National Bank of Chicago in
Chicago, Illinois or at such other place as the Company 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 Notes (herein called the
"Notes") issued pursuant to separate Note Purchase Agreements, dated as of
September 1, 1998 (as from time to time amended, the "Note Purchase
Agreements"), between the Company 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.
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.
<PAGE>
The Company will make required prepayments of principal on the dates
and in the amounts specified in the Note Purchase Agreements. This Note is also
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.
SOS STAFFING SERVICES, INC.
By
----------------------------------------
Its
---------------------------------------
<PAGE>
SOS STAFFING SERVICES, INC.
6.95% SENIOR NOTE, SERIES B, DUE SEPTEMBER 1, 2008
September 1, 1998
$2,000,000 PNN 78462XA@3
FOR VALUE RECEIVED, the Undersigned, SOS STAFFING SERVICES, INC.
(herein called the "Company"), a corporation organized and existing under the
laws of the State of Utah, hereby promises to pay to Farm Bureau Mutual
Insurance Company of Michigan, or registered assigns, the principal sum of TWO
MILLION DOLLARS on September 1, 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 6.95% per annum from the date hereof, payable semiannually, on the 1st
day of March and September in each year, commencing with March 1, 1999, 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) 8.95% or (ii) 2.0% over the rate of interest publicly announced
by The First National Bank of Chicago from time to time in Chicago, Illinois 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 The First National Bank of Chicago in
Chicago, Illinois or at such other place as the Company 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 Notes (herein called the
"Notes") issued pursuant to separate Note Purchase Agreements, dated as of
September 1, 1998 (as from time to time amended, the "Note Purchase
Agreements"), between the Company 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.
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.
<PAGE>
The Company will make required prepayments of principal on the dates
and in the amounts specified in the Note Purchase Agreements. This Note is also
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.
SOS STAFFING SERVICES, INC.
By
----------------------------------------
Its
---------------------------------------
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT (this "Agreement"), dated as of
July 27, 1998, is among SOS STAFFING SERVICES, INC., a Utah corporation (the
"Borrower"), THE FIRST NATIONAL BANK OF CHICAGO, a national banking association
("First Chicago"), FIRST SECURITY BANK, N.A., a national banking association
("First Security"), those other lenders from time to time party hereto (First
Chicago, First Security and such other lenders being referred to herein
individually as a "Lender" and collectively as the "Lenders"), First Chicago, as
documentation agent for the Lenders (in such capacity, the "Documentation
Agent"), and First Security, as administrative agent for the Lenders (in such
capacity, the "Administrative Agent"). The parties hereto agree as follows:
RECITALS
A. Pursuant to that certain Credit Agreement dated as of July 11, 1996
among the Borrower, First Chicago and First Security (as amended to date, the
"Existing Credit Agreement"), First Chicago and First Security have extended
credit to the Borrower on the terms and subject to the conditions set forth
therein.
B. The parties to the Existing Credit Agreement desire to amend the
Existing Credit Agreement and, for convenience of reference, to restate the
Existing Credit Agreement as so amended in its entirety by this Agreement.
NOW, THEREFORE, in consideration of the above Recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
-----------
As used in this Agreement:
"Acquisition" means any transaction, or any series of related transactions,
consummated on or after the date of this Agreement, by which the Borrower or any
of its Subsidiaries (i) acquires any going business or all or substantially all
of the assets of any firm, partnership, corporation or limited liability
company, or division thereof, whether through purchase of assets, merger or
otherwise or (ii) directly or indirectly acquires (in one transaction or as the
most recent transaction in a series of transactions) at least a majority (in
number of votes) of the securities of a corporation which have ordinary voting
power for the election of directors (other than securities having such power
only by reason of the happening of a contingency) or a majority (by percentage
or voting power) of the outstanding ownership interests of a partnership or
limited liability company.
"Adjusted EBITDA" means, calculated for the four full consecutive fiscal
quarters ending on the date of determination, the sum of: (i) the EBITDA of the
1a-222232
<PAGE>
Borrower and its Subsidiaries on a consolidated basis during such period, plus
(ii) in the event the Borrower or any Subsidiary consummates any Acquisition
during such period where a proforma statement in connection therewith is filed
with the Securities and Exchange Commission on Form 8-K, the EBITDA of any such
acquired Person for the time during such period prior to such Acquisition.
"Advance" means a borrowing hereunder (or conversion or continuation
thereof) consisting of the aggregate amount of the several Loans made on the
same Borrowing Date (or date of conversion or continuation) by the Lenders to
the Borrower of the same Type and, in the case of Fixed Rate Advances, for the
same Interest Period.
"Affiliate" of any Person means any other Person directly or indirectly
controlling, controlled by or under common control with such Person. A Person
shall be deemed to control another Person if the controlling Person owns 10% or
more of any class of voting securities (or other ownership interests) of the
controlled Person or possesses, directly or indirectly, the power to direct or
cause the direction of the management or policies of the controlled Person,
whether through ownership of stock, by contract or otherwise.
"Administrative Agent" means First Security in its capacity as
administrative agent for the Lenders pursuant to Article X, and not in its
individual capacity as a Lender, and any successor Administrative Agent
appointed pursuant to Article X.
"Aggregate Commitment" means the aggregate of the Commitments of all the
Lenders, as reduced from time to time pursuant to the terms hereof.
"Agreement" means this credit agreement, as it may be amended or modified
and in effect from time to time.
"Agreement Accounting Principles" means generally accepted accounting
principles as in effect from time to time, applied in a manner consistent with
that used in preparing the financial statements referred to in Section 5.4.
"Alternate Base Rate" means, for any day, a rate of interest per annum
equal to the higher of (i) the Corporate Base Rate for such day and (ii) the
Federal Funds Effective Rate for such day plus 1/2% per annum.
"Applicable Fee Rate" in connection with the commitment fee payable
pursuant to Section 2.5 below means at any date the percentage per annum set
forth below and corresponding to the range of Total Indebtedness / Adjusted
EBITDA Ratio under which the Borrower's Total Indebtedness / Adjusted EBITDA
Ratio (as determined based on the financial statements delivered by the Borrower
pursuant to Section 6.1 below) falls for the fiscal quarter ended immediately
prior to such date. Any adjustment in the Applicable Fee Rate shall be effective
beginning on the first Business Day of the calendar month immediately following
the date by which the applicable financial statements are required to be
delivered pursuant to Section 6.1 below. The Applicable Fee Rate shall be the
highest percentage per annum set forth below in the event such applicable
financial statements are not delivered in accordance with Section 6.1 below.
1a-222232
2
<PAGE>
Total Indebtedness / Adjusted EBITDA Ratio Applicable Fee Rate
- ------------------------------------------ -------------------
Less than or equal to 2.25:1.00 0.25%
Greater than 2.25:1.00 0.30%
"Applicable Margin" in connection with the Eurodollar Rate or the Floating
Rate, as applicable, means at any date the percentage per annum set forth below
in the applicable category column and corresponding to the range of Total
Indebtedness / Adjusted EBITDA Ratio under which the Borrower's Total
Indebtedness / Adjusted EBITDA Ratio (as determined based on the financial
statements delivered by the Borrower pursuant to Section 6.1 below) falls for
the fiscal quarter ended immediately prior to such date. Any adjustment in the
Applicable Margin shall be effective beginning on the first Business Day of the
calendar month immediately following the date by which the applicable financial
statements are required to be delivered pursuant to Section 6.1 below. The
Applicable Margin shall be the highest percentage per annum set forth below in
the event such applicable financial statements are not delivered in accordance
with Section 6.1 below.
<TABLE>
<CAPTION>
Total Indebtedness / Adjusted Applicable Margin in connection Applicable Margin in connection with
- ----------------------------- ----------------------------------------- ------------------------------------
EBITDA Ratio with the Eurodollar Rate the Floating Rate
- ----------------------------- ----------------------------------------- ------------------------------------
<S> <C> <C>
Less than or equal to 1.50:1.00 1.000% 0%
Greater than 1.50:1.00 but less than 1.250% 0%
or equal to 2.25:1.00
Greater than 2.25:1.00 1.600% 0%
</TABLE>
"Article" means an article of this Agreement unless another document is
specifically referenced.
"Authorized Officer" means any of the Chairman, Chief Executive Officer,
President, Chief Financial Officer or Treasurer of the Borrower, acting singly.
"Borrower" means SOS Staffing Services, Inc., a Utah corporation, and its
successors and assigns.
"Borrowing Date" means a date on which an Advance is made hereunder.
"Borrowing Notice" is defined in Section 2.8.
"Business Day" means (i) with respect to any borrowing, payment or rate
selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on
which banks generally are open in Salt Lake City, Chicago, Los Angeles and New
York for the conduct of substantially all of their commercial lending activities
and on which dealings in United States dollars are carried on in the London
interbank market and (ii) for all other purposes, a day (other than a Saturday
or Sunday) on which banks generally are open in Salt Lake City and Chicago for
the conduct of substantially all of their commercial lending activities.
"Capitalized Lease" of a Person means any lease of Property by such Person
as lessee which would be capitalized on a balance sheet of such Person prepared
in accordance with Agreement Accounting Principles.
1a-222232
3
<PAGE>
"Capitalized Lease Obligations" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be shown as a
liability on a balance sheet of such Person prepared in accordance with
Agreement Accounting Principles.
"Change in Control" with respect to the Borrower is deemed to have occurred
at such time as any of the following events shall occur:
(i) There shall be consummated any consolidation and merger of the
Borrower in which the Borrower is not the continuing or surviving corporation or
pursuant to which the voting stock of the Borrower would be converted into cash,
securities or other property; or
(ii)There is a report filed by any person, including such person's
Affiliates, on Schedule 13D or 14D-1 (or any successor schedule, form or report)
pursuant to the Securities Exchange Act of 1934 (the "Exchange Act"), disclosing
that such person (for the purposes of this definition only, the term "person" is
used as defined in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act or
any successor provision to either of the foregoing) has become the beneficial
owner (as the term "beneficial owner" is defined under Rule 13d-3 or any
successor rule or regulation promulgated under the Exchange Act) of 50% or more
of the voting power of the Borrower's voting stock outstanding; provided,
however, that a Change in Control shall not be deemed to have occurred if at any
time the Borrower, any Subsidiary of the Borrower, any employee stock ownership
plan or any other employee benefit plan, including any pension plan of the
Borrower or any Subsidiary of the Borrower, or any person holding voting stock
for or pursuant to the terms of such employee benefit plan, files or becomes
obligated to file a report under or in response to Schedule 13D or Schedule
14D-1 (or any successor schedule, form or report) under the Exchange Act
disclosing beneficial ownership by it of shares of voting stock in the Borrower,
whether in excess of 50% or otherwise.
"Change in Control Notice" is defined in Section 2.18.
"Code" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.
"Commitment" means, for each Lender, the obligation of such Lender to make
Loans not exceeding the amount for such Lender set forth in the most current
commitment schedule provided to the Borrower and the Lenders by the
Documentation Agent (as such schedule may be modified from time to time pursuant
to the terms hereof, with the initial commitment schedule being attached hereto
as Schedule 4).
"Condemnation" is defined in Section 7.8.
"Contingent Obligation" of a Person means any agreement, undertaking or
arrangement by which such Person assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes or
is contingently liable upon, the obligation or liability of any other Person, or
agrees to maintain the net worth or working capital or other financial condition
of any other Person, or otherwise assures any creditor of such other Person
against loss, including, without limitation, any comfort letter, operating
agreement, take-or-pay contract or obligations in connection with letters of
credit.
1a-222232
4
<PAGE>
"Conversion/Continuation Notice" is defined in Section 2.9.
"Controlled Group" means all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
which, together with the Borrower or any of its Subsidiaries, are treated as a
single employer under Section 414 of the Code.
"Corporate Base Rate" means a rate per annum equal to the corporate base
rate of interest announced by the Administrative Agent from time to time,
changing when and as said corporate base rate changes.
"Default" means an event described in Article VII.
"Documentation Agent" means First Chicago in its capacity as documentation
agent for the Lenders pursuant to Article X, and not in its individual capacity
as a Lender, and any successor Documentation Agent appointed pursuant to Article
X.
"EBITDA" means, for any period and with respect to any Person and all such
Person's Subsidiaries on a consolidated basis, (i) the net earnings (or loss)
after taxes for such period taken as a single accounting period, plus (ii)
depreciation, depletion and amortization expense for such period, plus (iii)
federal, state and local income (or equivalent) taxes paid or accrued for such
period, plus (iv) total interest expense for such period (including amortization
of capitalized Indebtedness issuance costs), whether paid or accrued (including
the interest component of Capitalized Leases), including all commissions,
discounts and other fees and charges owed with respect to letters of credit,
plus (v) extraordinary, unusual or non-recurring losses and non-cash charges for
any disposition of businesses or early extinguishment of Indebtedness for such
period, minus (vi) any cash payments with respect to any non-cash charges and
expenses related to the disposition of businesses or early extinguishment of
Indebtedness previously taken into account for such period, in each case
determined in accordance with Agreement Accounting Principles and, in the case
of clauses (ii) through (vi), to the extent included in the determination of net
earnings (or loss) for such period.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, judicial decisions, regulations, ordinances, rules, judgments,
orders, decrees, plans, injunctions, permits, concessions, grants, franchises,
licenses, agreements and other governmental restrictions relating to (i) the
protection of the environment, (ii) the effect of the environment on human
health, (iii) emissions, discharges or releases of pollutants, contaminants,
hazardous substances or wastes into surface water, ground water or land, or (iv)
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, hazardous substances or
wastes or the clean-up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of l974, as
amended from time to time, and any rule or regulation issued thereunder.
"Eurodollar Advance" means an Advance which bears interest at a Eurodollar
Rate.
"Eurodollar Base Rate" means, with respect to a Eurodollar Advance for the
relevant Eurodollar Interest Period, the rate determined by the Administrative
Agent to be the rate at which the Administrative Agent offers to place deposits
in U.S. dollars with first-class banks in the London interbank market at
approximately 11 a.m. (London time) two Business Days prior to the first day of
1a-222232
5
<PAGE>
such Eurodollar Interest Period, in the approximate amount of the Administrative
Agent's (in its capacity as a Lender) relevant Eurodollar Loan and having a
maturity approximately equal to such Eurodollar Interest Period.
"Eurodollar Interest Period" means, with respect to a Eurodollar Advance, a
period of one, two, three or six months commencing on a Business Day selected by
the Borrower pursuant to this Agreement. Such Eurodollar Interest Period shall
end on the day which corresponds numerically to such date one, two, three or six
months thereafter, provided, however, that if there is no such numerically
corresponding day in such next, second, third or sixth succeeding month, such
Eurodollar Interest Period shall end on the last Business Day of such next,
second, third or sixth succeeding month. If a Eurodollar Interest Period would
otherwise end on a day which is not a Business Day, such Eurodollar Interest
Period shall end on the next succeeding Business Day, provided, however, that if
said next succeeding Business Day falls in a new calendar month, such Eurodollar
Interest Period shall end on the immediately preceding Business Day.
"Eurodollar Loan" means a Loan which bears interest at a Eurodollar Rate.
"Eurodollar Rate" means, with respect to a Eurodollar Advance for the
relevant Eurodollar Interest Period, the sum of (i) the quotient of (a) the
Eurodollar Base Rate applicable to such Eurodollar Interest Period, divided by
(b) one minus the Reserve Requirement (expressed as a decimal) applicable to
such Eurodollar Interest Period, plus (ii) the Applicable Margin. The Eurodollar
Rate shall be rounded to the next higher multiple of 1/16 of 1% if the rate is
not such a multiple.
"Existing Credit Agreement" has the meaning set forth in Recital A above.
"Facility Termination Date" means July 1, 2001, as such date may be
extended by written agreement of the Borrower, the Administrative Agent, the
Documentation Agent and the Lenders, or any earlier date on which the Aggregate
Commitment is reduced to zero or otherwise terminated pursuant to the terms
hereof.
"Federal Funds Effective Rate" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 9 a.m. (Salt Lake
City time) on such day on such transactions received by the Administrative Agent
from three Federal funds brokers of recognized standing selected by the
Administrative Agent in its sole discretion.
"First Chicago" means The First National Bank of Chicago, a national
banking association, in its individual capacity, and its successors.
"First Security" means First Security Bank, N.A., a national banking
association, in its individual capacity, and its successors.
"Fixed Rate" means the Eurodollar Rate.
"Fixed Rate Advance" means an Advance which bears interest at a Fixed Rate.
1a-222232
6
<PAGE>
"Fixed Rate Loan" means a Loan which bears interest at a Fixed Rate.
"Floating Rate" means, for any day, a rate per annum equal to (i) the
Alternate Base Rate for such day plus (ii) the Applicable Margin, changing when
and as the Alternate Base Rate changes.
"Floating Rate Advance" means an Advance which bears interest at the
Floating Rate.
"Floating Rate Loan" means a Loan which bears interest at the Floating
Rate.
"Guarantor" means each of the now existing or hereafter established or
acquired Subsidiary of the Borrower, and its respective successors and assigns.
"Guaranty" means a guaranty executed by a Guarantor in favor of the
Documentation Agent, for the ratable benefit of the Lenders, in the form of
Exhibit F hereto, as it may be amended or modified and in effect from time to
time.
"Indebtedness" of a Person means, without duplication, such Person's (i)
obligations for borrowed money, (ii) obligations representing the deferred
purchase price of Property or services (other than accounts payable arising in
the ordinary course of such Person's business payable on terms customary in the
trade), (iii) obligations, whether or not assumed, secured by Liens or payable
out of the proceeds or production from property now or hereafter owned or
acquired by such Person, (iv) obligations which are evidenced by notes,
acceptances, or other instruments, (v) Capitalized Lease Obligations, and (vi)
Contingent Obligations.
"Interest Charges" means, for any period and with respect to any Person,
the sum, without duplication, of (a) interest paid or payable during such period
by such Person on Indebtedness of such Person, plus (b) all debt discount and
expense amortized or required to be amortized during such period by such Person,
plus (c) all obligations of such Person in respect of any interest rate or
currency swap, rate cap or similar transaction paid or required to be paid
during such period by such Person.
"Interest Coverage Ratio" means, for any period and with respect to any
Person, the ratio of (a) EBITDA of such Person for such period, to (b) the
Interest Charges of such Person for such period, in each case determined in
accordance with Agreement Accounting Principles.
"Interest Period" means a Eurodollar Interest Period.
"Investment" of a Person means any loan, advance (other than commission,
travel and similar advances to officers and employees made in the ordinary
course of business), extension of credit (other than accounts receivable arising
in the ordinary course of business on terms customary in the trade) or
contribution of capital by such Person; stocks, bonds, mutual funds, partnership
interests, notes, debentures or other securities owned by such Person; any
deposit accounts and certificate of deposit owned by such Person; and structured
notes, derivative financial instruments and other similar instruments or
contracts owned by such Person.
"L/C Documents" has the meaning given such term in Section 2.19 below.
"L/C Drawing" has the meaning given such term in Section 2.21 below.
1a-222232
7
<PAGE>
"Lenders" means the lending institutions listed on the signature pages of
this Agreement and their respective successors and assigns.
"Lending Installation" means, with respect to a Lender, the Administrative
Agent or the Documentation Agent, any office, branch, subsidiary or affiliate of
such Lender, the Administrative Agent or the Documentation Agent.
"Letter of Credit" has the meaning given such term in Section 2.19 below.
"Letter of Credit Application" means an application for the issuance of a
Letter of Credit in form satisfactory to the Administrative Agent.
"Lien" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, the interest of a vendor or
lessor under any conditional sale, Capitalized Lease or other title retention
agreement).
"Loan" means, with respect to a Lender, such Lender's loan made pursuant to
Article II (or any conversion or continuation thereof).
"Loan Documents" means this Agreement, the Notes, the Guaranties, the
Subordination Agreements and the other documents and agreements contemplated
hereby and executed by the Borrower or any Guarantor in favor of the
Documentation Agent, the Administrative Agent or any Lender.
"Material Adverse Effect" means a material adverse effect on (i) the
business, Property, condition (financial or otherwise), results of operations,
or prospects of the Borrower and its Subsidiaries taken as a whole, (ii) the
ability of the Borrower or any Guarantor to perform its obligations under the
Loan Documents (provided that any such effect with respect to the Borrower or
any Guarantor shall not constitute a Material Adverse Effect if not more than
ten percent (10%) of the total assets of the Borrower and its Subsidiaries on a
consolidated basis is affected adversely by such effect), or (iii) the validity
or enforceability of any of the Loan Documents or the rights or remedies of the
Documentation Agent, the Administrative Agent or the Lenders thereunder.
"Net Worth" means as to any Person the net worth of such Person and its
consolidated Subsidiaries, determined in accordance with Agreement Accounting
Principles.
"Note" means a promissory note, in substantially the form of Exhibit "A"
hereto, duly executed by the Borrower and payable to the order of a Lender in
the amount of its Commitment, including any amendment, modification, renewal or
replacement of such promissory note.
"Notice of Assignment" is defined in Section 12.3.2.
"Obligations" means all unpaid principal of and accrued and unpaid interest
on the Notes, the Outstanding Letters of Credit, and unrepaid L/C Drawings, all
accrued and unpaid fees and all expenses, reimbursements, indemnities and other
1a-222232
8
<PAGE>
obligations of the Borrower to the Lenders or to any Lender, the Administrative
Agent, the Documentation Agent or any indemnified party hereunder arising under
the Loan Documents.
"Outstanding" shall mean with respect to Letters of Credit, any Letter of
Credit which has not been canceled, expired unutilized or fully drawn upon and
reference to the "amount" of any Outstanding Letter of Credit shall be deemed to
mean an amount available for drawing thereunder.
"Participants" is defined in Section 12.2.1.
"Payment Date" means the last day of each calendar quarter.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"Person" means any natural person, corporation, firm, joint venture,
partnership, association, enterprise, trust or other entity or organization, or
any government or political subdivision or any agency, department or
instrumentality thereof.
"Plan" means an employee pension benefit plan which is covered by Title IV
of ERISA or subject to the minimum funding standards under Section 412 of the
Code as to which the Borrower or any member of the Controlled Group may have any
liability.
"Property" of a Person means any and all property, whether real, personal,
tangible, intangible, or mixed, of such Person, or other assets owned, leased or
operated by such Person.
"Purchasers" is defined in Section 12.3.1.
"Rate Hedging Agreement" means an agreement, device or arrangement
providing for payments which are related to fluctuations of interest rates,
exchange rates or forward rates, including, but not limited to,
dollar-denominated or cross-currency interest rate exchange agreements, forward
currency exchange agreements, interest rate cap or collar protection agreements,
forward rate currency or interest rate options, puts and warrants.
"Rate Hedging Obligations" of a Person means any and all obligations of
such Person, whether absolute or contingent and howsoever and whensoever
created, arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under (i) any and all Rate
Hedging Agreements, and (ii) any and all cancellations, buy backs, reversals,
terminations or assignments of any Rate Hedging Agreement.
"Regulation D" means Regulation D of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor thereto or other
regulation or official interpretation of said Board of Governors relating to
reserve requirements applicable to member banks of the Federal Reserve System.
"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by banks for the purpose of purchasing or carrying margin
stocks applicable to member banks of the Federal Reserve System.
1a-222232
9
<PAGE>
"Reportable Event" means a reportable event as defined in Section 4043 of
ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days of
the occurrence of such event, provided, however, that a failure to meet the
minimum funding standard of Section 412 of the Code and of Section 302 of ERISA
shall be a Reportable Event regardless of the issuance of any such waiver of the
notice requirement in accordance with either Section 4043(a) of ERISA or Section
412(d) of the Code.
"Required Lenders" means Lenders in the aggregate having at least 51% of
the Aggregate Commitment or, if the Aggregate Commitment has been terminated,
Lenders in the aggregate holding at least 51% of the aggregate unpaid principal
amount of the outstanding Advances; provided, however, that if there are only
two Lenders hereunder, Required Lenders shall include both Lenders.
"Reserve Requirement" means, with respect to a Eurodollar Interest Period,
the maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed under Regulation D on Eurocurrency
liabilities.
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
"Single Employer Plan" means a Plan maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member of
the Controlled Group.
"Subordination Agreement" means a subordination agreement executed by a
Guarantor in favor of the Documentation Agent, for the ratable benefit of the
Lenders, in the form of Exhibit G hereto, as it may be amended or modified and
in effect from time to time.
"Subsidiary" of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or more
of its Subsidiaries or by such Person and one or more of its Subsidiaries, or
(ii) any partnership, limited liability company, association, joint venture or
similar business organization more than 50% of the ownership interests having
ordinary voting power of which shall at the time be so owned or controlled.
Unless otherwise expressly provided, all references herein to a "Subsidiary"
shall mean a Subsidiary of the Borrower.
"Substantial Portion" means, with respect to the Property of the Borrower
and its Subsidiaries, Property which represents more than 10% of the
consolidated assets of the Borrower and its Subsidiaries as would be shown in
the consolidated financial statements of the Borrower and its Subsidiaries as at
the beginning of the twelve-month period ending with the month in which such
determination is made.
"Total Capital" means, as of any date of determination, the Total
Indebtedness plus the Net Worth of the Borrower and its consolidated
Subsidiaries.
"Total Indebtedness" means, as of any date of determination, the amount
(determined in conformity with Agreement Accounting Principles) of (i) the
Obligations, plus (ii) all other outstanding Indebtedness of the Borrower and
all its Subsidiaries, determined on a consolidated basis, created or assumed by
1a-222232
10
<PAGE>
any of such Persons, plus (iii) all other outstanding Indebtedness of the
Borrower and all its Subsidiaries which arises under a revolving credit or
similar agreement which obligates the lender or lenders to extend credit.
"Total Indebtedness / Adjusted EBITDA Ratio" means, as of any date of
determination, the quotient of the Total Indebtedness of the Borrower and its
Subsidiaries (determined on a consolidated basis) as of such date divided by the
Adjusted EBITDA of the Borrower and its Subsidiaries (determined on a
consolidated basis) as of such date.
"Transferee" is defined in Section 12.4.
"Type" means, with respect to any Advance, its nature as a Floating Rate
Advance or a Eurodollar Advance.
"Unfunded Liabilities" means the amount (if any) by which the present value
of all vested and unvested accrued benefits under all Single Employer Plans
exceeds the fair market value of all such Plan assets allocable to such
benefits, all determined as of the then most recent valuation date for such
Plans using PBGC actuarial assumptions for single employer plan terminations.
"Unmatured Default" means an event which but for the lapse of time or the
giving of notice, or both, would constitute a Default.
"Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of the
outstanding voting securities of which shall at the time be owned or controlled,
directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries
of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of
such Person, or (ii) any partnership, limited liability company, association,
joint venture or similar business organization 100% of the ownership interests
having ordinary voting power of which shall at the time be so owned or
controlled.
"Year 2000 Issues" means anticipated costs, problems and uncertainties
associated with the inability of certain computer applications to effectively
handle data including dates on and after January 1, 2000, as such inability
affects the business, operations and financial condition of the Borrower and its
Subsidiaries and of the Borrower's and its Subsidiaries' material customers,
suppliers and vendors.
"Year 2000 Program" is defined in Section 5.19.
The foregoing definitions shall be equally applicable to both the singular
and plural forms of the defined terms.
ARTICLE II
THE CREDITS
-----------
2.1. Commitment. From and including the date of this Agreement and prior
to the Facility Termination Date, each Lender severally agrees, on the terms and
conditions set forth in this Agreement, to make Loans to the Borrower from time
to time in amounts not to exceed in the aggregate at any one time outstanding
the amount of its Commitment; provided, however, that the aggregate amount of
1a-222232
11
<PAGE>
Loans made by all Lenders at any one time outstanding shall not exceed the
Aggregate Commitment minus the aggregate dollar amount of Outstanding Letters of
Credit and unrepaid L/C Drawings on such date. Subject to the terms of this
Agreement, the Borrower may borrow, repay and reborrow at any time prior to the
Facility Termination Date. The Commitments to lend hereunder shall expire on the
Facility Termination Date.
2.2. Required Payments. Any outstanding Advances and all other unpaid
Obligations shall be paid in full by the Borrower on the Facility Termination
Date. In addition, all proceeds from any material sale of assets and from any
issuance of equity by the Borrower or any of its Subsidiaries shall be used to
repay any outstanding Advances hereunder.
2.3. Ratable Loans. Each Advance hereunder shall consist of Loans made
from the several Lenders ratably in proportion to the ratio that their
respective Commitments bear to the Aggregate Commitment.
2.4. Types of Advances. The Advances may be Floating Rate Advances or
Eurodollar Advances, or a combination thereof, selected by the Borrower in
accordance with Sections 2.8 and 2.9.
2.5. Commitment Fee; Reductions in Aggregate Commitment. The Borrower
agrees to pay to the Administrative Agent for the account of each Lender a
commitment fee equal to the Applicable Fee Rate multiplied by the amount,
calculated daily, equal to such Lender's Commitment minus such Lender's pro rata
share of all outstanding Loans and Advances, Outstanding Letters of Credit and
unrepaid L/C Drawings, from the date hereof to and including the Facility
Termination Date, payable quarterly, in arrears, on the last day of each
calendar quarter and on the Facility Termination Date. The Borrower may
permanently reduce the Aggregate Commitment in whole, or in part ratably among
the Lenders in the minimum amount of $500,000 and integral multiples of $100,000
in excess thereof, upon at least ten Business Days' written notice to the
Administrative Agent, which notice shall specify the amount of any such
reduction, provided, however, that the amount of the Aggregate Commitment may
not be reduced below the aggregate principal amount of the outstanding Advances.
All accrued commitment fees shall be payable on the effective date of any
termination of the obligations of the Lenders to make Loans hereunder.
2.6. Minimum Amount of Each Advance. Each Fixed Rate Advance shall be in
the minimum amount of $1,000,000 (and in multiples of $100,000 if in excess
thereof), and each Floating Rate Advance shall be in the minimum amount of
$100,000 (and in multiples of $100,000 if in excess thereof), provided, however,
that any Floating Rate Advance may be in the amount of the unused Aggregate
Commitment.
2.7. Optional Principal Payments. The Borrower may from time to time pay,
without penalty or premium, all outstanding Floating Rate Advances, or, in a
minimum aggregate amount of $100,000 or any integral multiple of $100,000 in
excess thereof, any portion of the outstanding Floating Rate Advances upon two
Business Days' prior notice to the Administrative Agent. A Fixed Rate Advance
may not be paid prior to the last day of the applicable Interest Period.
2.8. Method of Selecting Types and Interest Periods for New Advances. The
Borrower shall select the Type of Advance and, in the case of each Fixed Rate
Advance, the Interest Period applicable to each Advance from time to time. The
Borrower shall give the Administrative Agent irrevocable notice (a "Borrowing
Notice") not later than 9:00 a.m. (Salt Lake City time) at least one Business
1a-222232
12
<PAGE>
Day before the Borrowing Date of each Floating Rate Advance, and three Business
Days before the Borrowing Date for each Eurodollar Advance, specifying:
(i) the Borrowing Date, which shall be a Business Day, of such
Advance,
(ii) the aggregate amount of such Advance,
(iii) the Type of Advance selected, and
(iv) in the case of each Fixed Rate Advance, the Interest Period
applicable thereto.
Not later than 11:00 a.m. (Salt Lake City time) on each Borrowing Date, each
Lender shall make available its Loan or Loans, in funds immediately available in
Salt Lake City to the Administrative Agent at its address specified pursuant to
Article XIII. The Administrative Agent will make the funds so received from the
Lenders available to the Borrower at the Administrative Agent's aforesaid
address.
2.9. Conversion and Continuation of Outstanding Advances. Floating Rate
Advances shall continue as Floating Rate Advances unless and until such Floating
Rate Advances are converted into Fixed Rate Advances. Each Fixed Rate Advance
shall continue as a Fixed Rate Advance until the end of the then applicable
Interest Period therefor, at which time such Fixed Rate Advance shall be
automatically converted into a Floating Rate Advance unless the Borrower shall
have given the Administrative Agent a Conversion/Continuation Notice requesting
that, at the end of such Interest Period, such Fixed Rate Advance either
continue as a Fixed Rate Advance for the same or another Interest Period or be
converted into an Advance of another Type. Subject to the terms of Section 2.6,
the Borrower may elect from time to time to convert all or any part of an
Advance of any Type into any other Type of Advances; provided that any
conversion of any Fixed Rate Advance shall be made on, and only on, the last day
of the Interest Period applicable thereto. The Borrower shall give the
Administrative Agent irrevocable notice (a "Conversion/Continuation Notice") of
each conversion of an Advance or continuation of a Fixed Rate Advance not later
than 9:00 a.m. (Salt Lake City time) at least one Business Day, in the case of a
conversion into a Floating Rate Advance, or three Business Days, in the case of
a conversion into or continuation of a Fixed Rate Advance, prior to the date of
the requested conversion or continuation, specifying:
(i) the requested date which shall be a Business Day, of such
conversion or continuation,
(ii) the aggregate amount and Type of the Advance which is to be
converted or continued, and
(iii) the amount and Type(s) of Advance(s) into which such Advance
is to be converted or continued and, in the case of a
conversion into or continuation of a Fixed Rate Advance, the
duration of the Interest Period applicable thereto.
2.10. Changes in Interest Rate, etc. Each Floating Rate Advance shall bear
interest on the outstanding principal amount thereof, for each day from and
including the date such Advance is made or is converted from a Fixed Rate
Advance into a Floating Rate Advance pursuant to Section 2.9 to but excluding
the date it becomes due or is converted into a Fixed Rate Advance pursuant to
Section 2.9 hereof, at a rate per annum equal to the Floating Rate for such day.
Changes in the rate of interest on that portion of any Advance maintained as a
1a-222232
13
<PAGE>
Floating Rate Advance will take effect simultaneously with each change in the
Alternate Base Rate. Each Fixed Rate Advance shall bear interest on the
outstanding principal amount thereof from and including the first day of the
Interest Period applicable thereto to (but not including) the last day of such
Interest Period at the interest rate determined as applicable to such Fixed Rate
Advance. No Interest Period may end after the Facility Termination Date.
2.11. Rates Applicable After Default. Notwithstanding anything to the
contrary contained in Section 2.8 or 2.9, during the continuance of a Default
the Required Lenders may, at their option, by notice to the Borrower (which
notice may be revoked at the option of the Required Lenders notwithstanding any
provision of Section 8.2 requiring unanimous consent of the Lenders to changes
in interest rates), declare that no Advance may be made as, converted into or
continued as a Fixed Rate Advance. If any Advance is not paid at maturity,
whether by acceleration or otherwise, or any L/C Drawing is not paid when due,
the Required Lenders may, at their option, by notice to the Borrower (which
notice may be revoked at the option of the Required Lenders notwithstanding any
provision of Section 8.2 requiring unanimous consent of the Lenders to changes
in interest rates), declare that all outstanding Obligations (including any
Advance and any unrepaid L/C Drawing) shall bear interest at a rate per annum
equal to the Floating Rate plus 2% per annum.
2.12. Method of Payment. All payments of the Obligations hereunder shall
be made, without setoff, deduction, or counterclaim, in immediately available
funds to the Administrative Agent at the Administrative Agent's address
specified pursuant to Article XIII, or at any other Lending Installation of the
Administrative Agent specified in writing by the Administrative Agent to the
Borrower, by noon (local time) on the date when due and shall be applied ratably
by the Administrative Agent among the Lenders. Each payment delivered to the
Administrative Agent for the account of any Lender shall be delivered promptly
by the Administrative Agent to such Lender in the same type of funds that the
Administrative Agent received at its address specified pursuant to Article XIII
or at any Lending Installation specified in a notice received by the
Administrative Agent from such Lender. The Administrative Agent is hereby
authorized to charge the account of the Borrower maintained with the
Administrative Agent for each payment of principal, interest and fees as it
becomes due hereunder.
2.13. Notes; Telephonic Notices. Each Lender is hereby authorized to
record the principal amount of each of its Loans and each repayment on the
schedule attached to its Note, provided, however, that neither the failure to so
record nor any error in such recordation shall affect the Borrower's obligations
under such Note. The Borrower hereby authorizes the Lenders and the
Administrative Agent to extend, convert or continue Advances, effect selections
of Types of Advances and to transfer funds based on telephonic notices made by
any person or persons the Administrative Agent or any Lender in good faith
believes to be acting on behalf of the Borrower. The Borrower agrees to deliver
promptly to the Administrative Agent a written confirmation, if such
confirmation is requested by the Administrative Agent or any Lender, of each
telephonic notice signed by an Authorized Officer. The Administrative Agent and
the Lenders shall be entitled to rely on any such telephonic notice and take
actions pursuant thereto without any written confirmation (if none has been
requested) or prior to the receipt of any written confirmation (if one has been
requested). If the related written confirmation differs in any material respect
from the action taken by the Administrative Agent and the Lenders, the records
of the Administrative Agent and the Lenders shall govern absent manifest error.
2.14. Interest Payment Dates; Interest and Fee Basis. Interest accrued on
each Floating Rate Advance shall be payable on the last day of each month,
commencing with the first such date to occur after the date hereof, on any date
1a-222232
14
<PAGE>
on which the Floating Rate Advance is prepaid, whether due to acceleration or
otherwise, and at maturity. Interest accrued on that portion of the outstanding
principal amount of any Floating Rate Advance converted into a Fixed Rate
Advance on a day other than a Payment Date shall be payable on the date of
conversion. Interest accrued on each Fixed Rate Advance shall be payable on the
last day of its applicable Interest Period, on any date on which the Fixed Rate
Advance is prepaid, whether by acceleration or otherwise, and at maturity.
Interest accrued on each Fixed Rate Advance having an Interest Period longer
than three months shall also be payable on the last day of each three-month
interval during such Interest Period. Interest on Fixed Rate Loans, commitment
fees and letter of credit fees shall be calculated for actual days elapsed on
the basis of a 360-day year. Interest on Floating Rate Loans shall be calculated
for actual days elapsed on the basis of a 365-, or when appropriate 366-, day
year. Interest shall be payable for the day an Advance is made but not for the
day of any payment on the amount paid if payment is received prior to noon
(local time) at the place of payment. If any payment of principal of or interest
on an Advance shall become due on a day which is not a Business Day, such
payment shall be made on the next succeeding Business Day and, in the case of a
principal payment, such extension of time shall be included in computing
interest in connection with such payment.
2.15. Notification of Advances, Interest Rates, Prepayments and Commitment
Reductions. Promptly after receipt thereof, the Administrative Agent will notify
each Lender of the contents of each Aggregate Commitment reduction notice,
Borrowing Notice, Conversion/Continuation Notice, and repayment notice received
by it hereunder. The Administrative Agent will notify each Lender of the
interest rate applicable to each Fixed Rate Advance promptly upon determination
of such interest rate and will give each Lender prompt notice of each change in
the Alternate Base Rate.
2.16. Lending Installations. Each Lender may book its Loans at any Lending
Installation selected by such Lender and may change its Lending Installation
from time to time. All terms of this Agreement shall apply to any such Lending
Installation and the Notes shall be deemed held by each Lender for the benefit
of such Lending Installation. Each Lender may, by written or telex notice to the
Administrative Agent and the Borrower, designate a Lending Installation through
which Loans will be made by it and for whose account Loan payments are to be
made.
2.17. Non-Receipt of Funds by the Administrative Agent.Unless the Borrower
or a Lender, as the case may be, notifies the Administrative Agent prior to the
date on which it is scheduled to make payment to the Administrative Agent of (i)
in the case of a Lender, the proceeds of a Loan or (ii) in the case of the
Borrower, a payment of principal, interest or fees to the Administrative Agent
for the account of the Lenders, that it does not intend to make such payment,
the Administrative Agent may assume that such payment has been made. The
Administrative Agent may, but shall not be obligated to, make the amount of such
payment available to the intended recipient in reliance upon such assumption. If
such Lender or the Borrower, as the case may be, has not in fact made such
payment to the Administrative Agent, the recipient of such payment shall, on
demand by the Administrative Agent, repay to the Administrative Agent the amount
so made available together with interest thereon in respect of each day during
the period commencing on the date such amount was so made available by the
Administrative Agent until the date the Administrative Agent recovers such
amount at a rate per annum equal to (i) in the case of payment by a Lender, the
Federal Funds Effective Rate for such day or (ii) in the case of payment by the
Borrower, the interest rate applicable to the relevant Loan.
2.18. Mandatory Prepayment in the Event of a Change in Control. No later
than ten (10) Business Days prior to the consummation of any transaction which
would cause a Change in Control, the Borrower shall notify (a "Change in Control
1a-222232
15
<PAGE>
Notice") the Administrative Agent and the Documentation Agent (and the
Documentation Agent shall promptly forward a copy of such Change in Control
Notice to each Lender) of such expected transaction, including within such
Change in Control Notice the expected closing date of such transaction. Within
five (5) Business Days of receipt of such Change in Control Notice by any
Lender, such Lender may, at its option, give notice to the Administrative Agent,
the Documentation Agent and the Borrower that such Lender elects to terminate
its Commitment hereunder. Unless an earlier date is otherwise agreed upon
between the Borrower, the Administrative Agent, the Documentation Agent and the
terminating Lender, such Lender's Commitment shall terminate simultaneously with
the closing of such transaction and the Borrower shall repay at such time all of
such Lender's outstanding Loans, together with accrued interest thereon, any
accrued fees with respect to such Lender's Commitment, any costs, losses or
expenses incurred by such Lender in connection with such prepayment payable by
the Borrower pursuant to Section 3.4 and any other obligations of the Borrower
to such Lender hereunder. Any failure of the Borrower to deliver a Change in
Control Notice pursuant to this Section shall not affect the right of any Lender
to terminate its Commitment hereunder simultaneously with the closing of the
transaction causing the Change in Control nor the obligation of the Borrower to
repay at the time of such closing the amounts required in connection with such
termination.
2.19. Issuance of Letters of Credit. On the terms and subject to the
conditions set forth herein, the Administrative Agent shall, from time to time
from and including the date of this Agreement and prior to the Facility
Termination Date, issue its letters of credit (each a "Letter of Credit" and,
collectively, the "Letters of Credit") for the account of the Borrower, in an
amount (a) which when added to the aggregate amount of other Outstanding Letters
of Credit and unpaid L/C Drawings will not exceed $10,000,000, and (b) which
when added to the aggregate amount of Loans outstanding hereunder and the
aggregate amount of other Outstanding Letters of Credit and unpaid L/C Drawings
will not exceed the Aggregate Commitment. Each Letter of Credit shall be
requested by the Borrower at least one Business Day prior to the proposed
issuance date by delivery to the Administrative Agent of a duly executed Letter
of Credit Application, accompanied by all other documents, instruments and
agreements as the Administrative Agent may require (the "L/C Documents"). No
Letter of Credit shall have a stated expiration date (or provide for the
extension of such stated expiration date or the issuance of any replacement
therefor) later than the Facility Termination Date.
2.20. Purchase of Participation Interests. Upon the issuance of each
Letter of Credit, the Lenders shall be automatically deemed to have purchased an
undivided participation interest therein and in all rights and obligations
relating thereto ratably in proportion to the ratio that their respective
Commitments bear to the Aggregate Commitment.
2.21. Repayment of L/C Drawings. Any drawing under any Letter of Credit (a
"L/C Drawing") shall be payable in full by the Borrower: (1) prior to the
occurrence of a Default and acceleration of the Obligations, on the date the
Administrative Agent notifies the Borrower (which notice may be telephonic) of
such L/C Drawing if such notice is given prior to 1:00 p.m. (Salt Lake City
time), or on the next succeeding Business Day if given after 1:00 p.m. (Salt
Lake City time), or (2) following the occurrence of a Default and acceleration
of the Obligations, without demand upon or notice to the Borrower, on the date
of such L/C Drawing. Any L/C Drawing not paid on the date when due shall accrue
interest as provided in Section 2.11 above, from and including such date to but
not including the date paid in full. The Lenders hereby absolutely and
unconditionally (including, without limitation, following the occurrence of a
Default) agree to purchase and sell among themselves the dollar amount of any
L/C Drawing which is not paid on the date when due by the Borrower, so that each
1a-222232
16
<PAGE>
unrepaid L/C Drawing shall be held and participated in by the Lenders ratably in
proportion to the ratio that their respective Commitments bear to the Aggregate
Commitment.
2.22. Absolute Obligation to Repay. The Borrower's obligation to repay L/C
Drawings shall be absolute, irrevocable and unconditional under any and all
circumstances whatsoever and irrespective of any set-off, counterclaim or
defense to payment which the Borrower may have or have had, against any Lender
or any other Person, including, without limitation, any set-off, counterclaim or
defense based upon or arising out of: (1) any lack of validity or enforceability
of this Agreement or any of the other Loan Documents; (2) any amendment or
waiver of or any consent to departure from the terms of any Letter of Credit;
(3) the existence of any claim, setoff, defense or other right which the
Borrower or any other Person may have at any time against any beneficiary or any
transferee of any Letter of Credit (or any Person for whom any such beneficiary
or any such transferee may be acting); (4) any allegation that any demand,
statement or any other document presented under any Letter of Credit is forged,
fraudulent, invalid or insufficient in any respect, or that any statement
therein is untrue or inaccurate in any respect whatsoever or that variations in
punctuation, capitalization, spelling or format were contained in the drafts or
any statements presented in connection with any L/C Drawing; (5) any payment
made by the Administrative Agent under any Letter of Credit to any Person
purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the
benefit of creditors, liquidator, receiver or other representative of or
successor to any beneficiary or any transferee of any Letter of Credit,
including any arising in connection with any insolvency proceeding; or (6) any
other circumstance of happening whatsoever, whether or not similar to any of the
foregoing, including any other circumstance that might otherwise constitute a
defense available to, or a discharge of the Borrower. Nothing contained herein
shall constitute a waiver of any rights of the Borrower against the
Administrative Agent arising out of the gross negligence or willful misconduct
of the Administrative Agent in connection with any Letter of Credit issued
hereunder, it being expressly acknowledged and agreed by the Administrative
Agent that payment by the Administrative Agent under any Letter of Credit in an
amount in excess of that available for drawing thereunder or in excess of that
requested by the beneficiary in making a drawing thereunder shall constitute
"gross negligence" on the part of the Administrative Agent.
2.23. Uniform Customs and Practice. The Uniform Customs and Practice for
Documentary Credits as published by the International Chamber of Commerce most
recently at the time of issuance of any Letter of Credit shall (unless otherwise
expressly provided in such Letter of Credit) apply to such Letter of Credit.
2.24. Relationship to Letter of Credit Application. In the event of any
inconsistency between the terms and provisions of this Agreement and the terms
and provisions of the Letter of Credit Application, the terms and provisions of
this Agreement shall supersede and govern.
2.25. Letter of Credit Fee. The Borrower agrees to pay to the
Administrative Agent for the account of the Lenders, ratably in proportion to
the ratio that their respective Commitments bear to the Aggregate Commitment, a
letter of credit fee equal to one percent (1%) multiplied by the stated amount
of all Outstanding Letters of Credit, payable in arrears on each Payment Date
hereafter and on the Facility Termination Date.
2.26. Guaranties and Subordination Agreements.As additional credit support
for the Obligations, the Borrower shall cause to be executed and delivered to
the Documentation Agent from each of the Guarantors a Guaranty and a
Subordination Agreement. The Borrower shall also cause to be executed and
1a-222232
17
<PAGE>
delivered to the Documentation Agent a Guaranty and a Subordination Agreement
from any other direct or indirect Subsidiary hereafter established or acquired
from time to time.
ARTICLE III
CHANGE IN CIRCUMSTANCES
-----------------------
3.1. Yield Protection. If any law or any governmental or
quasi-governmental rule, regulation, policy, guideline or directive (whether or
not having the force of law), or any interpretation thereof, or the compliance
of any Lender therewith,
(i) subjects any Lender or any applicable Lending Installation to
any tax, duty, charge or withholding on or from payments due
from the Borrower (excluding federal taxation of the overall
net income of any Lender or applicable Lending Installation),
or changes the basis of taxation of payments to any Lender in
respect of its Loans or other amounts due it hereunder, or
(ii) imposes or increases or deems applicable any reserve,
assessment, insurance charge, special deposit or similar
requirement against assets of, deposits with or for the
account of, or credit extended by, any Lender or any
applicable Lending Installation (other than reserves and
assessments taken into account in determining the interest
rate applicable to Fixed Rate Advances), or
(iii) imposes any other condition the result of which is to increase
the cost to any Lender or any applicable Lending Installation
of making, funding or maintaining loans or reduces any amount
receivable by any Lender or any applicable Lending
Installation in connection with loans, or requires any Lender
or any applicable Lending Installation to make any payment
calculated by reference to the amount of loans held or
interest received by it, by an amount deemed material by such
Lender,
then, within 15 days of demand by such Lender, the Borrower shall pay such
Lender that portion of such increased expense incurred or reduction in an amount
received which such Lender determines is attributable solely to making, funding
and maintaining its Loans and its Commitment. Notwithstanding anything to the
contrary set forth above in this Section, this Section shall not apply to
Floating Rate Loans.
3.2. Changes in Capital Adequacy Regulations. If a Lender determines the
amount of capital required or expected to be maintained by such Lender, any
Lending Installation of such Lender or any corporation controlling such Lender
is increased as a result of a Change, then, within 15 days of demand by such
Lender, the Borrower shall pay such Lender the amount necessary to compensate
for any shortfall in the rate of return on the portion of such increased capital
which such Lender determines is attributable to this Agreement, its Loans or its
obligation to make Loans hereunder (after taking into account such Lender's
policies as to capital adequacy). "Change" means (i) any change after the date
of this Agreement in the Risk-Based Capital Guidelines or (ii) any adoption of
or change in any other law, governmental or quasi-governmental rule, regulation,
policy, guideline, interpretation, or directive (whether or not having the force
of law) after the date of this Agreement which affects the amount of capital
required or expected to be maintained by any Lender or any Lending Installation
1a-222232
18
<PAGE>
or any corporation controlling any Lender. "Risk-Based Capital Guidelines" means
(i) the risk-based capital guidelines in effect in the United States on the date
of this Agreement, including transition rules, and (ii) the corresponding
capital regulations promulgated by regulatory authorities outside the United
States implementing the July 1988 report of the Basle Committee on Banking
Regulation and Supervisory Practices Entitled "International Convergence of
Capital Measurements and Capital Standards," including transition rules, and any
amendments to such regulations adopted prior to the date of this Agreement.
Notwithstanding anything to the contrary set forth above in this Section, this
Section shall not apply to Floating Rate Loans.
3.3. Availability of Types of Advances. If any Lender determines that
maintenance of any of its Fixed Rate Loans at a suitable Lending Installation
would violate any applicable law, rule, regulation, or directive, whether or not
having the force of law, or if the Required Lenders determine that (i) deposits
of a type and maturity appropriate to match fund Fixed Rate Advances are not
available or (ii) the interest rate applicable to a Type of Advance does not
accurately reflect the cost of making or maintaining such Advance, then the
Administrative Agent shall suspend the availability of the affected Type of
Advance and require any Fixed Rate Advances of the affected Type to be repaid.
3.4. Funding Indemnification. If any payment of a Fixed Rate Advance
occurs on a date which is not the last day of the applicable Interest Period,
whether because of acceleration, prepayment or otherwise, or a Fixed Rate
Advance is not made on the date specified by the Borrower for any reason other
than default by the Lenders, the Borrower will indemnify each Lender for any
loss or cost incurred by it resulting therefrom, including, without limitation,
any loss or cost in liquidating or employing deposits acquired to fund or
maintain the Fixed Rate Advance.
3.5. Lender Statements; Survival of Indemnity. To the extent reasonably
possible, each Lender shall designate an alternate Lending Installation with
respect to its Fixed Rate Loans to reduce any liability of the Borrower to such
Lender under Sections 3.1 and 3.2 or to avoid the unavailability of a Type of
Advance under Section 3.3, so long as such designation is not disadvantageous to
such Lender. Each Lender shall deliver a written statement of such Lender to the
Borrower (with a copy to the Administrative Agent) as to the amount due, if any,
under Section 3.1, 3.2 or 3.4. Such written statement shall set forth in
reasonable detail the calculations upon which such Lender determined such amount
and shall be final, conclusive and binding on the Borrower in the absence of
manifest error. Determination of amounts payable under such Sections in
connection with a Fixed Rate Loan shall be calculated as though each Lender
funded its Fixed Rate Loan through the purchase of a deposit of the type and
maturity corresponding to the deposit used as a reference in determining the
Fixed Rate applicable to such Loan, whether in fact that is the case or not.
Unless otherwise provided herein, the amount specified in the written statement
of any Lender shall be payable on demand after receipt by the Borrower of such
written statement. The obligations of the Borrower under Sections 3.1, 3.2 and
3.4 shall survive payment of the Obligations and termination of this Agreement.
ARTICLE IV
CONDITIONS PRECEDENT; WITHHOLDING TAX EXEMPTION
4.1. Initial Advance. The Lenders shall not be required to make the
initial Advance hereunder at any time prior to the date of this Agreement and
unless and until the Borrower has furnished to the Documentation Agent with
sufficient copies for the Lenders:
1a-222232
19
<PAGE>
(i) Duly executed originals of this Agreement.
(ii) Duly executed originals of each of the Guaranties.
(iii) Duly executed originals of each of the Subordination
Agreements.
(iv) Copies of the articles of incorporation of the Borrower,
together with all amendments, and a certificate of good
standing, both certified by the Secretary of State of the
State of Utah.
(v) Copies, certified by the Secretary or Assistant Secretary of
the Borrower, of its by-laws and of its Board of Directors'
resolutions (and resolutions of other bodies, if any are
deemed necessary by counsel for any Lender) authorizing the
execution of the Loan Documents.
(vi) An incumbency certificate, executed by the Secretary or
Assistant Secretary of the Borrower, which shall identify by
name and title and bear the signature of the officers of the
Borrower authorized to sign the Loan Documents and to make
borrowings hereunder, upon which certificate the
Administrative Agent, the Documentation Agent and the Lenders
shall be entitled to rely until informed of any change in
writing by the Borrower.
(vii) With respect to each of the Guarantors, an incumbency
certificate, executed by the Secretary or Assistant Secretary
of such Guarantor, which shall identify by name and title and
bear the signature of the officers of such Guarantor
authorized to sign the Guaranty to which it is party.
(viii) A certificate, signed by the chief financial officer of the
Borrower, stating that on the initial Borrowing Date no
Default or Unmatured Default has occurred and is continuing.
(ix) A written opinion of counsel to the Borrower and the
Guarantors, addressed to the Lenders in substantially the form
of Exhibit "B" hereto.
(x) Notes payable to the order of each of the Lenders.
(xi) Written money transfer instructions, in substantially the form
of Exhibit "E" hereto, addressed to the Administrative Agent
and signed by an Authorized Officer, together with such other
related money transfer authorizations as the Administrative
Agent may have reasonably requested.
(xii) Evidence satisfactory to the Administrative Agent and the
Documentation Agent that upon funding of the initial Advance
hereunder, all Indebtedness under the Existing Credit
Agreement shall have been paid in full.
(xiii) Information satisfactory to the Documentation Agent and the
Lenders regarding the Borrower's Year 2000 Program.
(xiv) Such other documents as any Lender or its counsel may have
reasonably requested.
1a-222232
20
<PAGE>
Promptly upon funding of the Initial Advance hereunder, the Documentation Agent
shall cause to be released any security interest in any collateral securing the
Indebtedness under the Existing Credit Agreement.
4.2. Each Advance. The Lenders shall not be required to make any Advance
(other than an Advance that, after giving effect thereto and to the application
of the proceeds thereof, does not increase the aggregate amount of outstanding
Advances), unless on the applicable Borrowing Date:
(i) There exists no Default or Unmatured Default.
(ii) The representations and warranties contained in Article V are
true and correct in all material respects as of such Borrowing
Date except to the extent any such representation or warranty
is stated to relate solely to an earlier date, in which case
such representation or warranty shall be true and correct on
and as of such earlier date.
(iii) All legal matters incident to the making of such Advance shall be
satisfactory to the Lenders and their counsel.
Each Borrowing Notice with respect to each such Advance shall constitute a
representation and warranty by the Borrower that the conditions contained in
Sections 4.2(i) and (ii) have been satisfied. Any Lender may, through the
Administrative Agent, require a duly completed compliance certificate in
substantially the form of Exhibit "C" hereto as a condition to making an
Advance.
4.3. Withholding Tax Exemption. At least five Business Days prior to the
first date on which interest or fees are payable hereunder for the account of
any Lender, each Lender that is not incorporated under the laws of the United
States of America, or a state thereof, agrees that it will deliver to each of
the Borrower, the Administrative Agent and the Documentation Agent two duly
completed copies of United States Internal Revenue Service Form 1001 or 4224,
certifying in either case that such Lender is entitled to receive payments under
this Agreement and the Notes without deduction or withholding of any United
States federal income taxes. Each Lender which so delivers a Form 1001 or 4224
further undertakes to deliver to each of the Borrower, the Administrative Agent
and the Documentation Agent two additional copies of such form (or a successor
form) on or before the date that such form expires (currently, three successive
calendar years for Form 1001 and one calendar year for Form 4224) or becomes
obsolete or after the occurrence of any event requiring a change in the most
recent forms so delivered by it, and such amendments thereto or extensions or
renewals thereof as may be reasonably requested by the Borrower, the
Administrative Agent or the Documentation Agent, in each case certifying that
such Lender is entitled to receive payments under this Agreement and the Notes
without deduction or withholding of any United States federal income taxes,
unless an event (including without limitation any change in treaty, law or
regulation) has occurred prior to the date on which any such delivery would
otherwise be required which renders all such forms inapplicable or which would
prevent such Lender from duly completing and delivering any such form with
respect to it and such Lender advises the Borrower, the Administrative Agent and
the Documentation Agent that it is not capable of receiving payments without any
deduction or withholding of United States federal income tax.
1a-222232
21
<PAGE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES
------------------------------
The Borrower represents and warrants to the Lenders that:
5.1. Corporate Existence and Standing. Each of the Borrower and its
Subsidiaries is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite authority to conduct its business in each jurisdiction where its
ownership of property or conduct of business requires such authority and where
failure to have such authority could have a Material Adverse Effect.
5.2. Authorization and Validity. Each of the Borrower and the Guarantors
has the corporate power and authority and legal right to execute and deliver the
Loan Documents to which it is party and to perform its obligations thereunder.
The execution and delivery by the Borrower and the Guarantors of the Loan
Documents and the performance of their respective obligations thereunder have
been duly authorized by proper corporate proceedings, the Loan Documents to
which the Borrower is party constitute legal, valid and binding obligations of
the Borrower enforceable against the Borrower in accordance with their terms,
and the Loan Documents to which each Guarantor is party constitute legal, valid
and binding obligations of such Guarantor enforceable against such Guarantor in
accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency or similar laws affecting the enforcement of creditors'
rights generally.
5.3. No Conflict; Government Consent. Neither the execution and delivery
by the Borrower or any Guarantor of the Loan Documents, nor the consummation of
the transactions therein contemplated, nor compliance with the provisions
thereof will violate any law, rule, regulation, order, writ, judgment,
injunction, decree or award binding on the Borrower or any of the Guarantors or
the Borrower's or any Guarantor's articles of incorporation or by-laws or the
provisions of any material indenture, instrument or agreement to which the
Borrower or any of the Guarantors is a party or is subject, or by which it, or
its Property, is bound, or conflict with or constitute a default thereunder, or
result in the creation or imposition of any Lien in, of or on the Property of
the Borrower or any Guarantor pursuant to the terms of any such indenture,
instrument or agreement. No order, consent, approval, license, authorization, or
validation of, or filing, recording or registration with, or exemption by, or
other action in respect of any governmental or public body or authority, or any
subdivision thereof, is required to authorize, or is required in connection with
the execution, delivery and performance of, or the legality, validity, binding
effect or enforceability of, any of the Loan Documents.
5.4. Financial Statements. The consolidated financial statements dated
December 28, 1997 of the Borrower and its Subsidiaries heretofore delivered to
the Lenders were prepared in accordance with generally accepted accounting
principles in effect on the date such statements were prepared and fairly
present the consolidated financial condition and operations of the Borrower and
its Subsidiaries at such date and the consolidated results of their operations
for the period then ended.
5.5. Material Adverse Change. Since December 28, 1997, there has been no
change in the business, Property, prospects, condition (financial or otherwise)
or results of operations of the Borrower and its Subsidiaries which is likely to
have a Material Adverse Effect.
1a-222232
22
<PAGE>
5.6. Taxes.The Borrower and its Subsidiaries have filed all United States
federal tax returns and all other tax returns which are required to be filed and
have paid all taxes due pursuant to said returns or pursuant to any assessment
received by the Borrower or any of its Subsidiaries, except such taxes, if any,
as are being contested in good faith and as to which adequate reserves have been
provided in accordance with Agreement Accounting Principles and as to which no
Lien exists. The United States income tax returns of the Borrower and its
Subsidiaries have been audited by the Internal Revenue Service through the
fiscal year ended December 31, 1993. No tax liens have been filed and no claims
are being asserted with respect to any such taxes. The charges, accruals and
reserves on the books of the Borrower and its Subsidiaries in respect of any
taxes or other governmental charges are adequate.
5.7. Litigation and Contingent Obligations. Except as set forth on
Schedule "3" hereto, there is no litigation, arbitration, governmental
investigation, proceeding or inquiry pending or, to the knowledge of any of
their officers, threatened against or affecting the Borrower or any of its
Subsidiaries which could have a Material Adverse Effect or which seeks to
prevent, enjoin or delay the making of the Loans or Advances. Other than any
liability incident to such litigation, arbitration or proceedings, the Borrower
has no material contingent obligations not provided for or disclosed in the
financial statements referred to in Section 5.4.
5.8. Subsidiaries. Schedule "1" hereto contains an accurate list of all
Subsidiaries of the Borrower as of the date of this Agreement, setting forth
their respective jurisdictions of incorporation and the percentage of their
respective capital stock owned by the Borrower or other Subsidiaries. All of the
issued and outstanding shares of capital stock of such Subsidiaries have been
duly authorized and issued and are fully paid and non-assessable.
5.9. ERISA. The Unfunded Liabilities of all Single Employer Plans do not
in the aggregate exceed $1,000,000. Each Plan complies in all material respects
with all applicable requirements of law and regulations, no Reportable Event has
occurred with respect to any Plan, neither the Borrower nor any other members of
the Controlled Group has withdrawn from any Plan or initiated steps to do so,
and no steps have been taken to reorganize or terminate any Plan.
5.l0. Accuracy of Information. No information, exhibit or report furnished
by the Borrower or any of its Subsidiaries to the Administrative Agent or to any
Lender in connection with the negotiation of, or compliance with, the Loan
Documents contained any material misstatement of fact or omitted to state a
material fact or any fact necessary to make the statements contained therein not
misleading.
5.11. Regulation U. Margin stock (as defined in Regulation U) constitutes
less than 25% of those assets of the Borrower and its Subsidiaries which are
subject to any limitation on sale, pledge, or other restriction hereunder.
5.12. Material Agreements. Neither the Borrower nor any Subsidiary is a
party to any agreement or instrument or subject to any charter or other
corporate restriction which is likely to have a Material Adverse Effect. Neither
the Borrower nor any Subsidiary is in default in the performance, observance or
fulfillment of any of the material obligations, covenants or conditions
contained in (i) any agreement to which it is a party, which default is likely
to have a Material Adverse Effect or (ii) any agreement or instrument evidencing
or governing Indebtedness.
1a-222232
23
<PAGE>
5.13. Compliance With Laws. The Borrower and its Subsidiaries have
complied with all applicable statutes, rules, regulations, orders and
restrictions of any domestic or foreign government or any instrumentality or
agency thereof, having jurisdiction over the conduct of their respective
businesses or the ownership of their respective Property if failure to comply
could reasonably be expected to have a Material Adverse Effect.
5.14. Ownership of Properties. Except as set forth on Schedule "2" hereto,
on the date of this Agreement, the Borrower and its Subsidiaries will have good
title, free of all Liens other than those permitted by Section 6.15, to all of
the Property and assets reflected in the financial statements as owned by it.
5.15. Plan Assets; Prohibited Transactions. The Borrower is not an entity
deemed to hold "plan assets" within the meaning of 29 C.F.R. ss. 2510.3-101 of
an employee benefit plan (as defined in Section 3(3) of ERISA) which is subject
to Title I of ERISA or any plan (within the meaning of Section 4975 of the
Code); and neither the execution of this Agreement and the making of Loans
hereunder do not give rise to a prohibited transaction within the meaning of
Section 406 of ERISA or Section 4975 of the Code.
5.16. Environmental Matters. In the ordinary course of its business, the
officers of the Borrower consider the effect of Environmental Laws on the
business of the Borrower and its Subsidiaries, in the course of which they
identify and evaluate potential risks and liabilities accruing to the Borrower
due to Environmental Laws. On the basis of this consideration, the Borrower has
reasonably concluded that it is in material compliance with all applicable
Environmental Laws in effect on the date of this representation and warranty.
Neither the Borrower nor any Subsidiary has received any notice to the effect
that its operations are not in material compliance with any of the requirements
of applicable Environmental Laws or are the subject of any federal or state
investigation evaluating whether any remedial action is needed to respond to a
release of any toxic or hazardous waste or substance into the environment, which
non-compliance or remedial action could have a Material Adverse Effect.
5.17. Investment Company Act. Neither the Borrower nor any Subsidiary
thereof is an "investment company" or a company "controlled" by an "investment
company", within the meaning of the Investment Company Act of 1940, as amended.
5.18. Public Utility Holding Company Act. Neither the Borrower nor any
Subsidiary is a "holding company" or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
5.19. Year 2000 Program. The Borrower has made a full and complete
assessment of the Year 2000 Issues and has a realistic and achievable program
for remediating the Year 2000 Issues on a timely basis (the "Year 2000
Program"). Based on such assessment and on the Year 2000 Program the Borrower
does not reasonably anticipate that Year 2000 Issues will have a Material
Adverse Effect.
1a-222232
24
<PAGE>
ARTICLE VI
COVENANTS
---------
During the term of this Agreement, unless the Required Lenders shall
otherwise consent in writing:
6.1. Financial Reporting. The Borrower will maintain, for itself and each
Subsidiary, a system of accounting established and administered in accordance
with generally accepted accounting principles, and furnish to the Lenders:
(i) Within 90 days after the close of each of its fiscal years,
(A) an unqualified (except for qualifications relating to
changes in accounting principles or practices reflecting
changes in generally accepted principles of accounting and
required or approved by the Borrower's independent certified
public accountants) audit report certified by independent
certified public accountants, acceptable to the Required
Lenders, prepared in accordance with Agreement Accounting
Principles on a consolidated and consolidating basis
(consolidating statements need not be certified by such
accountants) for itself and the Subsidiaries, including
balance sheets as of the end of such period, related profit
and loss and reconciliation of surplus statements, and a
statement of cash flows, accompanied by any management letter
prepared by said accountants, and (B) consolidating unaudited
balance sheets as at the close of each such period and
consolidating profit and loss and reconciliation of surplus
statements and a statement of cash flows for such fiscal year,
all certified by its chief financial officer.
(ii) Within 45 days after the close of the first three quarterly
periods of each of its fiscal years, for itself and the
Subsidiaries, consolidated and consolidating unaudited balance
sheets as at the close of each such period and consolidated
and consolidating profit and loss and reconciliation of
surplus statements and a statement of cash flows for the
period from the beginning of such fiscal year to the end of
such quarter, all certified by its chief financial officer.
(iii) Together with the financial statements required under Sections
6.1(i) and (ii), a compliance certificate in substantially the
form of Exhibit "C" hereto signed by an Authorized Officer
showing the calculations necessary to determine compliance
with this Agreement and stating that no Default or Unmatured
Default exists, or if any Default or Unmatured Default exists,
stating the nature and status thereof.
(iv) Within 270 days after the close of each fiscal year, a
statement of the Unfunded Liabilities of each Single Employer
Plan, certified as correct by an actuary enrolled under ERISA.
(v) As soon as possible and in any event within 10 days after the
Borrower knows that any Reportable Event has occurred with
respect to any Plan, a statement, signed by the chief
financial officer of the Borrower, describing said Reportable
Event and the action which the Borrower proposes to take with
respect thereto.
(vi) As soon as possible and in any event within 10 days after
receipt by the Borrower, a copy of (a) any notice or claim to
the effect that the Borrower or any of its Subsidiaries is or
may be liable to any Person as a result of the release by the
Borrower, any of its Subsidiaries, or any other Person of any
toxic or hazardous waste or substance into the environment,
and (b) any notice alleging any violation of any federal,
state or local environmental, health or safety law or
1a-222232
25
<PAGE>
regulation by the Borrower or any of its Subsidiaries, which,
in either case, could reasonably be expected to have a
Material Adverse Effect.
(vii) Promptly upon the furnishing thereof to the shareholders of
the Borrower, copies of all financial statements, reports and
proxy statements so furnished.
(viii) Promptly upon the filing thereof, copies of all registration
statements and annual, quarterly, monthly or other regular
reports which the Borrower or any of its Subsidiaries files
with the Securities and Exchange Commission.
(ix) Such other information (including non-financial information)
as the Documentation Agent, the Administrative Agent or any
Lender may from time to time reasonably request.
6.2. Use of Proceeds. The Borrower will, and will cause each Subsidiary
to, use the proceeds of the Advances to repay the obligations under the Existing
Credit Agreement, to support general corporate purposes and friendly
Acquisitions, and to repay outstanding Advances. The Borrower will not, nor will
it permit any Subsidiary to, use any of the proceeds of the Advances to purchase
or carry any "margin stock" (as defined in Regulation U).
6.3. Notice of Default. The Borrower will, and will cause each Subsidiary
to, give prompt notice in writing to the Lenders of the occurrence of any
Default or Unmatured Default and of any other development, financial or
otherwise (including, without limitation, developments with respect to Year 2000
Issues), which could have a Material Adverse Effect.
6.4. Conduct of Business. The Borrower will, and will cause each
Subsidiary to, carry on and conduct its business in substantially the same
manner and in substantially the same fields of enterprise as it is presently
conducted or in related business lines and to do all things necessary to remain
duly incorporated, validly existing and in good standing as a domestic
corporation in its jurisdiction of incorporation and maintain all requisite
authority to conduct its business in each jurisdiction in which its business is
conducted.
6.5. Taxes. The Borrower will, and will cause each Subsidiary to, timely
file complete and correct United States federal and applicable foreign, state
and local tax returns required by law and pay when due all taxes, assessments
and governmental charges and levies upon it or its income, profits or Property,
except those which are being contested in good faith by appropriate proceedings
and with respect to which adequate reserves have been set aside in accordance
with Agreement Accounting Principles.
6.6. Insurance. The Borrower will, and will cause each Subsidiary to,
maintain with financially sound and reputable insurance companies insurance on
all their Property in such amounts and covering such risks as is consistent with
sound business practice, and the Borrower will furnish to any Lender upon
request full information as to the insurance carried.
6.7. Compliance with Laws. The Borrower will, and will cause each
Subsidiary to, comply with all laws, rules, regulations, orders, writs,
judgments, injunctions, decrees or awards to which it may be subject, except to
the extent that such noncompliance could not reasonably be expected to have a
Material Adverse Effect.
1a-222232
26
<PAGE>
6.8. Maintenance of Properties. The Borrower will, and will cause each
Subsidiary to, do all things necessary to maintain, preserve, protect and keep
its Property in good repair, working order and condition, and make all necessary
and proper repairs, renewals and replacements so that its business carried on in
connection therewith may be properly conducted at all times.
6.9. Inspection. The Borrower will, and will cause each Subsidiary to,
permit the Administrative Agent, the Documentation Agent and the Lenders, by
their respective representatives and agents, to inspect any of the Property,
corporate books and financial records of the Borrower and each Subsidiary, to
examine and make copies of the books of accounts and other financial records of
the Borrower and each Subsidiary, and to discuss the affairs, finances and
accounts of the Borrower and each Subsidiary with, and to be advised as to the
same by, their respective officers at such reasonable times and intervals as the
Administrative Agent, the Documentation Agent or any Lender may designate.
6.10. Dividends. The Borrower will not, nor will it permit any Subsidiary
to, declare or pay any dividends or make any distributions on its capital stock
(other than dividends payable in its own capital stock and dividends on
preferred stock of the Borrower outstanding on the date of this Agreement),
except that any Subsidiary may declare and pay dividends to, or make
distributions to, or make redemptions from, the Borrower or a Wholly-Owned
Subsidiary.
6.11. Indebtedness. The Borrower will not, nor will it permit any
Subsidiary to, create, incur or suffer to exist any Indebtedness, except:
(i) The Loans.
(ii) Indebtedness existing on the date hereof and described in
Schedule "2" hereto.
(iii) Indebtedness arising under Rate Hedging Agreements related to
the Loans.
(iv) Subject to the prior review by the Documentation Agent of (A)
the relevant documentation in connection therewith and (B)
evidence of the Borrower's compliance with the financial
covenants under this Agreement on a proforma basis upon the
incurrence thereof, any other Indebtedness with a final
maturity date not earlier than five years from its date of
issuance and with financial covenants that are not more
restrictive than those under this Agreement.
6.12. Merger. The Borrower will not, nor will it permit any Subsidiary to,
merge or consolidate with or into any other Person, except: (1) any merger of a
Subsidiary into the Borrower or a Wholly-Owned Subsidiary, and (2) any
consolidation or merger in which the Borrower is the surviving entity and the
shareholders of the Borrower prior to such consolidation or merger will control
a majority of the Borrower's voting stock upon the closing of such consolidation
or merger.
6.13. Sale of Assets. The Borrower will not, nor will it permit any
Subsidiary to, lease, sell or otherwise dispose of its Property, to any other
Person, except:
(i) Sales of inventory in the ordinary course of business.
1a-222232
27
<PAGE>
(ii) Leases, sales or other dispositions of its Property that,
together with all other Property of the Borrower and its
Subsidiaries previously leased, sold or disposed of (other
than inventory in the ordinary course of business) as
permitted by this Section during the twelve-month period
ending with the month in which any such lease, sale or other
disposition occurs, do not constitute a Substantial Portion of
the Property of the Borrower and its Subsidiaries.
6.14. Investments and Acquisitions. The Borrower will not, nor will it
permit any Subsidiary to, make or suffer to exist any Investments (including,
without limitation, loans and advances to, and other Investments in,
Subsidiaries), or commitments therefor, or to create any Subsidiary or to become
or remain a partner in any partnership or joint venture, or to make any
Acquisition of any Person, except:
(i) Short-term obligations of, or fully guaranteed by, the United
States of America.
(ii) Commercial paper rated A-l or better by Standard and Poor's
Ratings Group, a division of McGraw Hill, Inc., or P-l or
better by Moody's Investors Service, Inc.
(iii) Municipal bonds rated AA or better, and preferred stock
rated A or better, by Standard and Poor's Ratings Group.
(iv) Demand deposit accounts maintained in the ordinary course of
business.
(v) Certificates of deposit issued by and time deposits with
commercial banks (whether domestic or foreign) having capital
and surplus in excess of $100,000,000.
(vi) Existing Investments in Subsidiaries and other Investments in
existence on the date hereof and described in Schedule "1"
hereto.
(vii) Investments arising in the ordinary course of business.
(viii) Friendly Acquisitions involving total expenditures not to
exceed (A) 20% of the Borrower's consolidated Net Worth in any
one transaction or series of transactions related to the same
entity; or (B) in the aggregate for any calendar year, 50% of
the Borrower's consolidated Net Worth; provided, however, that
with the prior written consent of the Lenders, the Borrower
may make friendly Acquisitions involving total expenditures in
excess of the above limits.
(ix) Investments in connection with non-qualified deferred
compensation programs for employees of the Borrower where the
Investments are directed by such employees.
6.15. Liens. The Borrower will not, nor will it permit any Subsidiary to,
create, incur, or suffer to exist any Lien in, of or on the Property of the
Borrower or any of its Subsidiaries, except:
(i) Liens for taxes, assessments or governmental charges or levies
on its Property if the same shall not at the time be
delinquent or thereafter can be paid without penalty, or are
being contested in good faith and by appropriate proceedings
1a-222232
28
<PAGE>
and for which adequate reserves in accordance with generally
accepted principles of accounting shall have been set aside on
its books.
(ii) Liens imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar liens arising in the
ordinary course of business which secure payment of
obligations not more than 60 days past due or which are being
contested in good faith by appropriate proceedings and for
which adequate reserves shall have been set aside on its
books.
(iii) Landlord's liens (whether imposed by law or by contract) on
personal property located in leased premises arising in the
ordinary course of business which secure payment of
obligations not more than 60 days past due or which are being
contested in good faith by appropriate proceedings and for
which adequate reserves shall have been set aside on its
books.
(iv) Liens arising out of pledges or deposits under worker's
compensation laws, unemployment insurance, old age pensions,
or other social security or retirement benefits, or similar
legislation.
(v) Utility easements, building restrictions and such other
encumbrances or charges against real property as are of a
nature generally existing with respect to properties of a
similar character and which do not in any material way affect
the marketability of the same or interfere with the use
thereof in the business of the Borrower or the Subsidiaries.
(vi) Liens existing on the date hereof and described in Schedule
"2" hereto.
6.16. Total Indebtedness / Total Capital Ratio. The Borrower will not
permit the ratio of the Total Indebtedness to the Total Capital of the Borrower
and its Subsidiaries on a consolidated basis to exceed 0.45:1.00, all determined
as of the last day of each fiscal quarter for the 12-month period ending on such
date.
6.17. Affiliates. The Borrower will not, and will not permit any
Subsidiary to, enter into any transaction (including, without limitation, the
purchase or sale of any Property or service) with, or make any payment or
transfer to, any Affiliate except in the ordinary course of business and
pursuant to the reasonable requirements of the Borrower's or such Subsidiary's
business and upon fair and reasonable terms no less favorable to the Borrower or
such Subsidiary than the Borrower or such Subsidiary would obtain in a
comparable arms-length transaction.
6.18. Net Worth The Borrower will not permit the Net Worth of the Borrower
and its consolidated Subsidiaries to be less than the sum of: (i) $83,500,000,
plus (ii) fifty percent (50%) of net income of the Borrower and its consolidated
Subsidiaries (if positive) earned at any time after December 31, 1997,
determined in accordance with Agreement Accounting Principles, plus (iii)
seventy-five percent (75%) of the net proceeds of any new equity issuance of the
Borrower and its consolidated Subsidiaries occurring at any time after the date
of this Agreement.
1a-222232
29
<PAGE>
6.19. Total Indebtedness / Adjusted EBITDA Ratio The Borrower will not
permit the Total Indebtedness / Adjusted EBITDA Ratio of the Borrower and its
consolidated Subsidiaries, determined as of the last day of each fiscal quarter
for the 12-month period ending on such date, to exceed 3.0:1.0.
6.20. Interest Coverage Ratio The Borrower will not permit the Interest
Coverage Ratio of the Borrower and its consolidated Subsidiaries, determined as
of the last day of each fiscal quarter for the 12-month period ending on such
date, to be less than 3.0:1.0.
6.21. Year 2000 Program. The Borrower will take and will cause each of its
Subsidiaries to take all such actions as are reasonably necessary to
successfully implement the Year 2000 Program and to assure that Year 2000 Issues
will not have a Material Adverse Effect. At the request of the Documentation
Agent or any Lender, the Borrower will provide a description of the Year 2000
Program, together with any updates or progress reports with respect thereto.
ARTICLE VII
DEFAULTS
--------
The occurrence of any one or more of the following events shall constitute
a Default:
7.1. Any representation or warranty made or deemed made by or on behalf
of the Borrower or any of its Subsidiaries to the Lenders, the Documentation
Agent or the Administrative Agent under or in connection with this Agreement,
any Loan, or any certificate or information delivered in connection with this
Agreement or any other Loan Document shall be materially false on the date as of
which made.
7.2. Nonpayment of principal of any Note when due, or nonpayment of
interest upon any Note or of any commitment fee or other obligations under any
of the Loan Documents within five days after the same becomes due.
7.3. The breach by the Borrower of any of the terms or provisions of
Article VI.
7.4. The breach by the Borrower (other than a breach which constitutes a
Default under Section 7.1, 7.2 or 7.3) of any of the terms or provisions of this
Agreement which is not remedied within thirty days after written notice from the
Administrative Agent, the Documentation Agent or any Lender.
7.5. Failure of the Borrower or any Guarantor to pay when due any
Indebtedness aggregating in excess of $1,000,000 ("Material Indebtedness"); or
the default by the Borrower or any Guarantor in the performance of any term,
provision or condition contained in any agreement under which any such Material
Indebtedness was created or is governed, or any other event shall occur or
condition exist, the effect of which is to cause, or to permit the holder or
holders of such Material Indebtedness to cause, such Material Indebtedness to
become due prior to its stated maturity; or any Material Indebtedness of the
Borrower or any Guarantor shall be declared to be due and payable or required to
be prepaid or repurchased (other than by a regularly scheduled payment) prior to
the stated maturity thereof; or the Borrower or any Guarantor shall not pay, or
admit in writing its inability to pay, its debts generally as they become due.
1a-222232
30
<PAGE>
7.6. The Borrower or any Guarantor shall (i) have an order for relief
entered with respect to it under the Federal bankruptcy laws as now or hereafter
in effect, (ii) make an assignment for the benefit of creditors, (iii) apply
for, seek, consent to, or acquiesce in, the appointment of a receiver,
custodian, trustee, examiner, liquidator or similar official for it or any
Substantial Portion of its Property, (iv) institute any proceeding seeking an
order for relief under the Federal bankruptcy laws as now or hereafter in effect
or seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution,
winding up, liquidation, reorganization, arrangement, adjustment or composition
of it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors or fail to file an answer or other pleading
denying the material allegations of any such proceeding filed against it, (v)
take any corporate action to authorize or effect any of the foregoing actions
set forth in this Section 7.6 or (vi) fail to contest in good faith any
appointment or proceeding described in Section 7.7.
7.7. Without the application, approval or consent of the Borrower or any
Guarantor, a receiver, trustee, examiner, liquidator or similar official shall
be appointed for the Borrower or any Guarantor or any Substantial Portion of its
Property, or a proceeding described in Section 7.6(iv) shall be instituted
against the Borrower or any Guarantor and such appointment continues
undischarged or such proceeding continues undismissed or unstayed for a period
of 30 consecutive days.
7.8. Any court, government or governmental agency shall condemn, seize or
otherwise appropriate, or take custody or control of (each a "Condemnation"),
all or any portion of the Property of the Borrower or any Guarantor which, when
taken together with all other Property of the Borrower or any Guarantor so
condemned, seized, appropriated, or taken custody or control of, during the
twelve-month period ending with the month in which any such Condemnation occurs,
constitutes a Substantial Portion.
7.9. The Borrower or any of its Subsidiaries shall fail within 30 days to
pay, bond or otherwise discharge any judgment or order for the payment of money
(to the extent not covered by insurance) in excess of $1,000,000, which is not
stayed on appeal or otherwise being appropriately contested in good faith.
7.10. The Unfunded Liabilities of all Single Employer Plans shall exceed
in the aggregate $1,000,000 or any Reportable Event shall occur in connection
with any Plan.
7.11. The Borrower or any of its Subsidiaries shall be the subject of any
proceeding or investigation pertaining to the release by the Borrower or any of
its Subsidiaries, or any other Person of any toxic or hazardous waste or
substance into the environment, or any violation of any federal, state or local
environmental, health or safety law or regulation, which, in either case, could
be reasonably expected to have a Material Adverse Effect.
7.12. The occurrence of any "default", as defined in any Loan Document
(other than this Agreement or the Notes) or the breach of any of the terms or
provisions of any Loan Document (other than this Agreement or the Notes), which
default or breach continues beyond any period of grace therein provided.
7.13. Nonpayment by the Borrower of any Rate Hedging Obligation when due
or the breach by the Borrower of any term, provision or condition contained in
any Rate Hedging Agreement.
1a-222232
31
<PAGE>
7.14. Any Guaranty shall fail to remain in full force or effect (and such
failure could reasonably be expected to have a Material Adverse Effect) or any
action shall be taken to discontinue or to assert the invalidity or
unenforceability of any Guaranty, or any Guarantor shall fail to comply with any
of the terms or provisions of any Guaranty to which it is a party (and such
failure could reasonably be expected to have a Material Adverse Effect), or any
Guarantor denies that it has any further liability under any Guaranty to which
it is a party, or gives notice to such effect.
ARTICLE VIII
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
----------------------------------------------
8.1. Acceleration. If any Default described in Section 7.6 or 7.7 occurs
with respect to the Borrower, the obligations of the Lenders to make Loans
hereunder and the Administrative Agent's obligation to issue Letters of Credit
hereunder shall automatically terminate and the Obligations shall immediately
become due and payable without any election or action on the part of the
Administrative Agent, the Documentation Agent or any Lender. If any other
Default occurs, the Required Lenders (or the Administrative Agent with the
consent of the Required Lenders) may terminate or suspend the obligations of the
Lenders to make Loans hereunder (and the Administrative Agent may in its sole
discretion terminate or suspend its obligation to issue Letters of Credit
hereunder), or declare the Obligations to be due and payable, or both, whereupon
the Obligations shall become immediately due and payable, without presentment,
demand, protest or notice of any kind, all of which the Borrower hereby
expressly waives. Any amounts paid by the Borrower to the Administrative Agent
on account of Outstanding Letters of Credit shall be held by the Administrative
Agent as cash collateral for the obligations of the Borrower with respect to
unpaid L/C Drawings relating thereto, and the Borrower hereby grants to the
Administrative Agent a first perfected security interest in said cash and
authorizes the Administrative Agent to apply such cash on account of future L/C
Drawings as such become payable by the Borrower.
If, within five (5) days after acceleration of the maturity of the
Obligations or termination of the obligations of the Lenders to make Loans
hereunder as a result of any Default (other than any Default as described in
Section 7.6 or 7.7 with respect to the Borrower) and before any judgment or
decree for the payment of the Obligations due shall have been obtained or
entered, the Required Lenders (in their sole discretion) shall so direct, the
Administrative Agent shall, by notice to the Borrower, rescind and annul such
acceleration and/or termination.
8.2. Amendments. Subject to the provisions of this Article VIII, the
Required Lenders (or the Documentation Agent with the consent in writing of the
Required Lenders) and the Borrower may enter into agreements supplemental hereto
for the purpose of adding or modifying any provisions to the Loan Documents or
changing in any manner the rights of the Lenders or the Borrower hereunder or
waiving any Default hereunder; provided, however, that no such supplemental
agreement shall, without the consent of each Lender affected thereby:
(i) Extend the maturity of any Loan or Note or forgive all or any
portion of the principal amount thereof, or reduce the rate or
extend the time of payment of interest or fees thereon.
(ii) Modify the definition of Required Lenders.
1a-222232
32
<PAGE>
(iii) Reduce the amount or extend the payment date for, the
mandatory payments required under Section 2.2, or increase or
decrease the amount of the Commitment of any Lender hereunder
(except for a ratable decrease in the Commitments of all
Lenders), or permit the Borrower to assign its rights under
this Agreement.
(iv) Amend this Section 8.2.
(v) Release any Guarantor of any Advance.
No amendment of any provision of this Agreement relating to the Administrative
Agent or the Documentation Agent shall be effective without the written consent
of the Administrative Agent or the Documentation Agent, as applicable. The
Documentation Agent may waive payment of the fee required under Section 12.3.2
without obtaining the consent of any other party to this Agreement.
8.3. Preservation of Rights. No delay or omission of the Lenders, the
Administrative Agent or the Documentation Agent to exercise any right under the
Loan Documents shall impair such right or be construed to be a waiver of any
Default or an acquiescence therein, and the making of a Loan notwithstanding the
existence of a Default or the inability of the Borrower to satisfy the
conditions precedent to such Loan shall not constitute any waiver or
acquiescence. Any single or partial exercise of any such right shall not
preclude other or further exercise thereof or the exercise of any other right,
and no waiver, amendment or other variation of the terms, conditions or
provisions of the Loan Documents whatsoever shall be valid unless in writing
signed by the Lenders required pursuant to Section 8.2, and then only to the
extent in such writing specifically set forth. All remedies contained in the
Loan Documents or by law afforded shall be cumulative and all shall be available
to the Administrative Agent, the Documentation Agent and the Lenders until the
Obligations have been paid in full.
ARTICLE IX
GENERAL PROVISIONS
------------------
9.1. Survival of Representations. All representations and warranties of
the Borrower contained in this Agreement shall survive delivery of the Notes and
the making of the Loans herein contemplated.
9.2. Governmental Regulation. Anything contained in this Agreement to the
contrary notwithstanding, no Lender shall be obligated to extend credit to the
Borrower in violation of any limitation or prohibition provided by any
applicable statute or regulation.
9.3. Taxes. Any taxes (excluding federal income taxes on the overall net
income of any Lender) or other similar assessments or charges made by any
governmental or revenue authority in respect of the Loan Documents shall be paid
by the Borrower, together with interest and penalties, if any.
1a-222232
33
<PAGE>
9.4. Headings. Section headings in the Loan Documents are for convenience
of reference only, and shall not govern the interpretation of any of the
provisions of the Loan Documents.
9.5. Entire Agreement. The Loan Documents embody the entire agreement and
understanding among the Borrower, the Administrative Agent, the Documentation
Agent and the Lenders and supersede all prior agreements and understandings
among the Borrower, the Administrative Agent, the Documentation Agent and the
Lenders relating to the subject matter thereof.
9.6. Several Obligations; Benefits of this Agreement. The respective
obligations of the Lenders hereunder are several and not joint and no Lender
shall be the partner or agent of any other (except to the extent to which the
Administrative Agent or the Documentation Agent is authorized to act as such).
The failure of any Lender to perform any of its obligations hereunder shall not
relieve any other Lender from any of its obligations hereunder. This Agreement
shall not be construed so as to confer any right or benefit upon any Person
other than the parties to this Agreement and their respective successors and
assigns.
9.7. Expenses; Indemnification. The Borrower shall reimburse the
Documentation Agent for any costs, internal charges and reasonable out-of-pocket
expenses (including attorneys' fees and time charges of attorneys for the
Documentation Agent, which attorneys may be employees of the Documentation
Agent) paid or incurred by the Documentation Agent in connection with the
preparation, negotiation, execution, delivery, review, amendment, modification,
and administration of the Loan Documents. The Borrower also agrees to reimburse
the Administrative Agent, the Documentation Agent and the Lenders for any costs,
internal charges and reasonable out-of-pocket expenses (including attorneys'
fees and time charges of attorneys for the Administrative Agent, the
Documentation Agent and the Lenders, which attorneys may be employees of the
Administrative Agent, the Documentation Agent or the Lenders) paid or incurred
by the Administrative Agent, the Documentation Agent or any Lender in connection
with the collection and enforcement of the Loan Documents. The Borrower further
agrees to indemnify the Administrative Agent, the Documentation Agent and each
Lender, its directors, officers and employees against all losses, claims,
damages, penalties, judgments, liabilities and expenses (including, without
limitation, all expenses of litigation or preparation therefor whether or not
the Administrative Agent, the Documentation Agent or any Lender is a party
thereto) which any of them may pay or incur arising out of or relating to this
Agreement, the other Loan Documents, the transactions contemplated hereby or the
direct or indirect application or proposed application of the proceeds of any
Loan hereunder except to the extent that they are determined by a court of
competent jurisdiction to have resulted from the gross negligence or willful
misconduct of the party seeking indemnification. The obligations of the Borrower
under this Section shall survive the termination of this Agreement.
9.8. Numbers of Documents. All statements, notices, closing documents,
and requests hereunder shall be furnished to the Administrative Agent and
Documentation Agent with sufficient counterparts so that the Administrative
Agent or the Documentation Agent may furnish one to each of the Lenders.
9.9. Accounting. Except as provided to the contrary herein, all
accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with Agreement Accounting
Principles, except that any calculation or determination which is to be made on
a consolidated basis shall be made for the Borrower and all its Subsidiaries,
including those Subsidiaries, if any, which are unconsolidated on the Borrower's
audited financial statements.
1A-222232
34
<PAGE>
9.10. Severability of Provisions. Any provision in any Loan Document that
is held to be inoperative, unenforceable, or invalid in any jurisdiction shall,
as to that jurisdiction, be inoperative, unenforceable, or invalid without
affecting the remaining provisions in that jurisdiction or the operation,
enforceability, or validity of that provision in any other jurisdiction, and to
this end the provisions of all Loan Documents are declared to be severable.
9.11. Nonliability of Lenders.The relationship between the Borrower on the
one hand and the Lenders, the Documentation Agent and the Administrative Agent
on the other hand shall be solely that of borrower and lender. Neither the
Administrative Agent, the Documentation Agent nor any Lender shall have any
fiduciary responsibilities to the Borrower. Neither the Administrative Agent,
the Documentation Agent nor any Lender undertakes any responsibility to the
Borrower to review or inform the Borrower of any matter in connection with any
phase of the Borrower's business or operations. The Borrower agrees that neither
the Administrative Agent, the Documentation Agent nor any Lender shall have
liability to the Borrower (whether sounding in tort, contract or otherwise) for
losses suffered by the Borrower in connection with, arising out of, or in any
way related to, the transactions contemplated and the relationship established
by the Loan Documents, or any act, omission or event occurring in connection
therewith, unless it is determined by a court of competent jurisdiction in a
final and non-appealable order that such losses resulted from the gross
negligence or willful misconduct of the party from which recovery is sought.
Neither the Administrative Agent, the Documentation Agent nor any Lender shall
have any liability with respect to, and the Borrower hereby waives, releases and
agrees not to sue for, any special, indirect or consequential damages suffered
by the Borrower in connection with, arising out of, or in any way related to the
Loan Documents or the transactions contemplated thereby.
9.12. Confidentiality. Each Lender agrees to hold any confidential
information which it may receive from the Borrower pursuant to this Agreement in
confidence, except for disclosure (i) to its Affiliates and to other Lenders and
their respective Affiliates, (ii) to legal counsel, accountants, and other
professional advisors to that Lender or to a Transferee, (iii) to regulatory
officials, (iv) to any Person as requested pursuant to or as required by law,
regulation, or legal process, (v) to any Person in connection with any legal
proceeding to which that Lender is a party, and (vi) permitted by Section 12.4.
9.13. Nonreliance. Each Lender hereby represents that it is not relying on
or looking to any margin stock (as defined in Regulation U of the Board of
Governors of the Federal Reserve System) for the repayment of the Loans provided
for herein.
ARTICLE X
THE ADMINISTRATIVE AGENT AND THE DOCUMENTATION AGENT
----------------------------------------------------
10.1. Appointment; Nature of Relationship.First Chicago and First Security
are hereby appointed by the Lenders as the Documentation Agent and the
Administrative Agent respectively hereunder and under each other Loan Document,
and each of the Lenders irrevocably authorizes the Documentation Agent and the
Administrative Agent to act as the contractual representative of such Lender
with the rights and duties expressly set forth herein and in the other Loan
Documents. Each of the Documentation Agent and the Administrative Agent agrees
to act as such contractual representative upon the express conditions contained
in this Article X. Notwithstanding the use of the defined terms "Documentation
1A-222232
35
<PAGE>
Agent" and "Administrative Agent," it is expressly understood and agreed that
the Documentation Agent and the Administrative Agent shall not have any
fiduciary responsibilities to any Lender by reason of this Agreement or any
other Loan Document and that each of the Documentation Agent and the
Administrative Agent is merely acting as the representative of the Lenders with
only those duties as are expressly set forth in this Agreement and the other
Loan Documents. In its capacity as the Lenders' contractual representative, each
of the Documentation Agent and the Administrative Agent (i) does not hereby
assume any fiduciary duties to any of the Lenders, (ii) is a "representative" of
the Lenders within the meaning of Section 9-105 of the Uniform Commercial Code
and (iii) is acting as an independent contractor, the rights and duties of which
are limited to those expressly set forth in this Agreement and the other Loan
Documents. Each of the Lenders hereby agrees to assert no claim against the
Documentation Agent or the Administrative Agent on any agency theory or any
other theory of liability for breach of fiduciary duty, all of which claims each
Lender hereby waives.
10.2. Powers. Each of the Documentation Agent and the Administrative Agent
shall have and may exercise such powers under the Loan Documents as are
specifically delegated to it by the terms of each thereof, together with such
powers as are reasonably incidental thereto. Neither the Documentation Agent nor
the Administrative Agent shall have any implied duties to the Lenders, or any
obligation to the Lenders to take any action thereunder except any action
specifically provided by the Loan Documents to be taken by it.
10.3. General Immunity. Neither the Administrative Agent nor the
Documentation Agent nor any of their respective directors, officers, agents or
employees shall be liable to the Borrower, the Lenders or any Lender for (i) any
action taken or omitted to be taken by it or them hereunder or under any other
Loan Document or in connection herewith or therewith except for its or their own
gross negligence or willful misconduct; or (ii) any determination by it or them
that compliance with any law or any governmental or quasi-governmental rule,
regulation, order, policy, guideline or directive (whether or not having the
force of law) requires the Advances and Commitments hereunder to be classified
as being part of a "highly leveraged transaction".
10.4. No Responsibility for Loans, Recitals, etc. Neither the
Administrative Agent nor the Documentation Agent nor any of their respective
directors, officers, agents or employees shall be responsible for or have any
duty to ascertain, inquire into, or verify (i) any statement, warranty or
representation made in connection with any Loan Document or any borrowing
hereunder; (ii) the performance or observance of any of the covenants or
agreements of any obligor under any Loan Document, including, without
limitation, any agreement by an obligor to furnish information directly to each
Lender; (iii) the satisfaction of any condition specified in Article IV, except
receipt of items required to be delivered to the Documentation Agent; (iv) the
validity, enforceability, effectiveness, sufficiency or genuineness of any Loan
Document or any other instrument or writing furnished in connection therewith;
or (v) the value, sufficiency, creation, perfection or priority of any interest
in any collateral security. Neither the Documentation Agent nor the
Administrative Agent shall have any duty to disclose to the Lenders information
that is not required to be furnished by the Borrower to it at such time, but is
voluntarily furnished by the Borrower to it (either in its capacity as the
Documentation Agent or the Administrative Agent, as applicable, or in its
individual capacity).
10.5. Action on Instructions of Lenders. Each of the Documentation Agent
and the Administrative Agent shall in all cases be fully protected in acting, or
in refraining from acting, hereunder and under any other Loan Document in
1A-222232
36
<PAGE>
accordance with written instructions signed by the Required Lenders, and such
instructions and any action taken or failure to act pursuant thereto shall be
binding on all of the Lenders and on all holders of Notes. The Lenders hereby
acknowledge that neither the Documentation Agent nor the Administrative Agent
shall be under any duty to take any discretionary action permitted to be taken
by it pursuant to the provisions of this Agreement or any other Loan Document
unless it shall be requested in writing to do so by the Required Lenders. Each
of the Documentation Agent and the Administrative Agent shall be fully justified
in failing or refusing to take any action hereunder and under any other Loan
Document unless it shall first be indemnified to its satisfaction by the Lenders
pro rata against any and all liability, cost and expense that it may incur by
reason of taking or continuing to take any such action.
10.6. Employment of Agents and Counsel. Each of the Documentation Agent
and the Administrative Agent may execute any of its duties as the Documentation
Agent or the Administrative Agent (as applicable) hereunder and under any other
Loan Document by or through employees, agents, and attorneys-in-fact and shall
not be answerable to the Lenders, except as to money or securities received by
it or its authorized agents, for the default or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care. Each of the Documentation
Agent and the Administrative Agent shall be entitled to advice of counsel
concerning all matters pertaining to the agency hereby created and its duties
hereunder and under any other Loan Document.
10.7. Reliance on Documents; Counsel. Each of the Documentation Agent and
the Administrative Agent shall be entitled to rely upon any Note, notice,
consent, certificate, affidavit, letter, telegram, statement, paper or document
believed by it to be genuine and correct and to have been signed or sent by the
proper person or persons, and, in respect to legal matters, upon the opinion of
counsel selected by it, which counsel may be its employees.
10.8. Reimbursement and Indemnification. The Lenders agree to reimburse
and indemnify each of the Documentation Agent and the Administrative Agent
ratably in proportion to their respective Commitments (or, if the Commitments
have been terminated, in proportion to their Commitments immediately prior to
such termination) (i) for any amounts not reimbursed by the Borrower for which
the Documentation Agent or the Administrative Agent (as applicable) is entitled
to reimbursement by the Borrower under the Loan Documents, (ii) for any other
expenses incurred by the Documentation Agent or the Administrative Agent (as
applicable) on behalf of the Lenders, in connection with the preparation,
execution, delivery, administration and enforcement of the Loan Documents and
(iii) for any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind and nature
whatsoever which may be imposed on, incurred by or asserted against the
Documentation Agent or the Administrative Agent (as applicable) in any way
relating to or arising out of the Loan Documents or any other document delivered
in connection therewith or the transactions contemplated thereby, or the
enforcement of any of the terms thereof or of any such other documents, provided
that no Lender shall be liable for any of the foregoing to the extent they arise
from the gross negligence or willful misconduct of the Documentation Agent or
the Administrative Agent (as applicable). The obligations of the Lenders under
this Section 10.8 shall survive payment of the Obligations and termination of
this Agreement.
10.9. Notice of Default. Neither the Administrative Agent nor the
Documentation Agent shall be deemed to have knowledge or notice of the
occurrence of any Default or Unmatured Default hereunder unless it has received
written notice from a Lender or the Borrower referring to this Agreement
describing such Default or Unmatured Default and stating that such notice is a
1A-222232
37
<PAGE>
"notice of default". In the event that the Administrative Agent or the
Documentation Agent (as applicable) receives such a notice, it shall give prompt
notice thereof to the Lenders.
10.10. Rights as a Lender. In the event the Administrative Agent or the
Documentation Agent (as applicable) is a Lender, it shall have the same rights
and powers hereunder and under any other Loan Document as any Lender and may
exercise the same as though it were not the Administrative Agent or the
Documentation Agent (as applicable), and the term "Lender" or "Lenders" shall,
at any time when such party is a Lender, unless the context otherwise indicates,
include such party in its individual capacity. Each of the Administrative Agent
and the Documentation Agent may accept deposits from, lend money to, and
generally engage in any kind of trust, debt, equity or other transaction, in
addition to those contemplated by this Agreement or any other Loan Document,
with the Borrower or any of its Subsidiaries in which the Borrower or such
Subsidiary is not restricted hereby from engaging with any other Person. Each of
the Administrative Agent and the Documentation Agent, in its individual
capacity, is not obligated to remain a Lender.
10.l1. Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Administrative Agent, the
Documentation Agent or any other Lender and based on the financial statements
prepared by the Borrower and such other documents and information as it has
deemed appropriate, made its own credit analysis and decision to enter into this
Agreement and the other Loan Documents. Each Lender also acknowledges that it
will, independently and without reliance upon the Administrative Agent, the
Documentation Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement and the
other Loan Documents.
10.12. Successor Administrative Agent and Documentation Agent. Each of the
Documentation Agent and the Administrative Agent may resign at any time by
giving written notice thereof to the Lenders and the Borrower, such resignation
to be effective upon the appointment of a successor Documentation Agent or
successor Administrative Agent (as applicable) or, if no such successor has been
appointed, forty-five days after the retiring Administrative Agent or
Documentation Agent (as applicable) gives notice of its intention to resign.
Upon any such resignation, the Required Lenders shall have the right to appoint,
on behalf of the Borrower and the Lenders, such successor. If no such successor
shall have been so appointed by the Required Lenders within thirty days after
the resigning Administrative Agent's or Documentation Agent's (as applicable)
giving notice of its intention to resign, then the resigning party may appoint,
on behalf of the Borrower and the Lenders, its successor. If the Administrative
Agent or the Documentation Agent (as applicable) has resigned and no successor
has been appointed, the Lenders may perform all the duties of the Administrative
Agent or the Documentation Agent (as applicable) hereunder and the Borrower
shall make all payments in respect of the Obligations to the applicable Lender
and for all other purposes shall deal directly with the Lenders. No successor
Administrative Agent or successor Documentation Agent shall be deemed to be
appointed hereunder until such successor has accepted the appointment. Any such
successor shall be a commercial bank having capital and retained earnings of at
least $50,000,000. Upon the acceptance of any appointment as Administrative
Agent or Documentation Agent hereunder by a successor, such successor shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the resigning party. Upon the effectiveness of the resignation of
the Administrative Agent or the Documentation Agent (as applicable), it shall be
discharged from its duties and obligations hereunder and under the Loan
Documents. After the effectiveness of the resignation of an Administrative Agent
or a Documentation Agent (as applicable), the provisions of this Article X shall
1A-222232
38
<PAGE>
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as the Administrative Agent or the
Documentation Agent (as applicable) hereunder and under the other Loan
Documents.
ARTICLE XI
SETOFF; RATABLE PAYMENTS
------------------------
11.1. Setoff. In addition to, and without limitation of, any rights of the
Lenders under applicable law, if the Borrower becomes insolvent, however
evidenced, or any Default or Unmatured Default occurs, any and all deposits
(including all account balances, whether provisional or final and whether or not
collected or available) and any other Indebtedness at any time held or owing by
any Lender to or for the credit or account of the Borrower may be offset and
applied toward the payment of the Obligations owing to such Lender, whether or
not the Obligations, or any part thereof, shall then be due.
11.2. Ratable Payments. If any Lender, whether by setoff or otherwise, has
payment made to it upon its Loans (other than payments received pursuant to
Section 3.1, 3.2 or 3.4) in a greater proportion than that received by any other
Lender, such Lender agrees, promptly upon demand, to purchase a portion of the
Loans held by the other Lenders so that after such purchase each Lender will
hold its ratable proportion of Loans. If any Lender, whether in connection with
setoff or amounts which might be subject to setoff or otherwise, receives
collateral or other protection for its Obligations or such amounts which may be
subject to setoff, such Lender agrees, promptly upon demand, to take such action
necessary such that all Lenders share in the benefits of such collateral ratably
in proportion to their Loans. In case any such payment is disturbed by legal
process, or otherwise, appropriate further adjustments shall be made. If any
such amount is to be applied to Indebtedness of the Borrower to a Lender, other
than Indebtedness evidenced by any of the Notes held by such Lender, such amount
shall be applied ratably to such other Indebtedness and to the Indebtedness
evidenced by such Notes.
ARTICLE XII
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
-------------------------------------------------
12.1. Successors and Assigns. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the Borrower and the
Lenders and their respective successors and assigns, except that (i) the
Borrower shall not have the right to assign its rights or obligations under the
Loan Documents and (ii) any assignment by any Lender must be made in compliance
with Section 12.3. Notwithstanding clause (ii) of this Section, any Lender may
at any time, without the consent of the Borrower, the Documentation Agent or the
Administrative Agent, assign all or any portion of its rights under this
Agreement and its Notes to a Federal Reserve Bank; provided, however, that no
such assignment to a Federal Reserve Bank shall release the transferor Lender
from its obligations hereunder. The Administrative Agent and the Documentation
Agent may treat the payee of any Note as the owner thereof for all purposes
hereof unless and until such payee complies with Section 12.3 in the case of an
assignment thereof or, in the case of any other transfer, a written notice of
the transfer is filed with the Documentation Agent. Any assignee or transferee
of a Note agrees by acceptance thereof to be bound by all the terms and
provisions of the Loan Documents. Any request, authority or consent of any
Person, who at the time of making such request or giving such authority or
1A-222232
39
<PAGE>
consent is the holder of any Note, shall be conclusive and binding on any
subsequent holder, transferee or assignee of such Note or of any Note or Notes
issued in exchange therefor.
12.2. Participations.
12.2.1 Permitted Participants; Effect. Any Lender may, in the
ordinary course of its business and in accordance with applicable law,
at any time sell to one or more banks or other entities
("Participants") participating interests in any Loan owing to such
Lender, any Note held by such Lender, any Commitment of such Lender,
any participating interests in any Letter of Credit or unrepaid L/C
Drawing, or any other interest of such Lender under the Loan Documents.
In the event of any such sale by a Lender of participating interests to
a Participant, such Lender's obligations under the Loan Documents shall
remain unchanged, such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations, such
Lender shall remain the holder of any such Note for all purposes under
the Loan Documents, all amounts payable by the Borrower under this
Agreement shall be determined as if such Lender had not sold such
participating interests, and the Borrower, the Documentation Agent and
the Administrative Agent shall continue to deal solely and directly
with such Lender in connection with such Lender's rights and
obligations under the Loan Documents.
12.2.2. Voting Rights. Each Lender shall retain the sole right
to approve, without the consent of any Participant, any amendment,
modification or waiver of any provision of the Loan Documents other
than any amendment, modification or waiver with respect to any Loan,
Commitment, Letter of Credit or unrepaid L/C Drawing in which such
Participant has an interest which forgives principal, interest or fees
or reduces the interest rate or fees payable with respect to any such
Loan, Commitment, Letter of Credit or unrepaid L/C Drawing, postpones
any date fixed for any regularly-scheduled payment of principal of, or
interest or fees on, any such Loan, Commitment, Letter of Credit or
unrepaid L/C Drawing, releases any guarantor of any such Loan or
releases any substantial portion of collateral, if any, securing any
such Loan.
12.2.3. Benefit of Setoff. The Borrower agrees that each
Participant shall be deemed to have the right of setoff provided in
Section 11.1 in respect of its participating interest in amounts owing
under the Loan Documents to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under the
Loan Documents, provided that each Lender shall retain the right of
setoff provided in Section 11.1 with respect to the amount of
participating interests sold to each Participant. The Lenders agree to
share with each Participant, and each Participant, by exercising the
right of setoff provided in Section 11.1, agrees to share with each
Lender, any amount received pursuant to the exercise of its right of
setoff, such amounts to be shared in accordance with Section 11.2 as if
each Participant were a Lender.
12.3. Assignments.
12.3.1. Permitted Assignments. With prior written notice to
the Documentation Agent and the other Lenders, any Lender may, in the
ordinary course of its business and in accordance with applicable law,
at any time assign to one or more banks or other entities
("Purchasers") all or any part of its rights and obligations under the
Loan Documents. Such assignment shall be substantially in the form of
Exhibit "D" hereto or in such other form as may be agreed to by the
parties thereto. The consent of the Documentation Agent shall be
1A-222232
40
<PAGE>
required prior to an assignment becoming effective with respect to a
Purchaser which is not a Lender or an Affiliate thereof. Such consent
shall not be unreasonably withheld or delayed. Each such assignment
shall be in an amount not less than the lesser of (i) $5,000,000 or
(ii) the remaining amount of the assigning Lender's Commitment
(calculated as at the date of such assignment).
12.3.2. Effect; Effective Date. Upon (i) delivery to the
Documentation Agent of a notice of assignment, substantially in the
form attached as Exhibit "I" to Exhibit "D" hereto (a "Notice of
Assignment"), together with any consents required by Section 12.3.1,
and (ii) payment of a $3,500 fee by the assignee to the Documentation
Agent for processing such assignment, such assignment shall become
effective on the effective date specified in such Notice of Assignment.
The Notice of Assignment shall contain a representation by the
Purchaser to the effect that none of the consideration used to make the
purchase of the Commitment and Loans under the applicable assignment
agreement are "plan assets" as defined under ERISA and that the rights
and interests of the Purchaser in and under the Loan Documents will not
be "plan assets" under ERISA. On and after the effective date of such
assignment, such Purchaser shall for all purposes be a Lender party to
this Agreement and any other Loan Document executed by the Lenders and
shall have all the rights and obligations of a Lender under the Loan
Documents, to the same extent as if it were an original party hereto,
and no further consent or action by the Borrower, the Lenders, the
Documentation Agent or the Administrative Agent shall be required to
release the transferor Lender with respect to the percentage of the
Aggregate Commitment and Loans assigned to such Purchaser. Upon the
consummation of any assignment to a Purchaser pursuant to this Section
12.3.2, the transferor Lender, the Documentation Agent and the Borrower
shall make appropriate arrangements so that new Notes, if appropriate,
are issued to such Purchaser.
12.4. Dissemination of Information. The Borrower authorizes each Lender to
disclose to any Participant or Purchaser or any other Person acquiring an
interest in the Loan Documents by operation of law (each a "Transferee") and any
prospective Transferee any and all information in such Lender's possession
concerning the creditworthiness of the Borrower and its Subsidiaries; provided
that each Transferee and prospective Transferee agrees to be bound by Section
9.12 of this Agreement.
12.5. Tax Treatment. If any interest in any Loan Document is transferred to
any Transferee which is organized under the laws of any jurisdiction other than
the United States or any State thereof, the transferor Lender shall cause such
Transferee, concurrently with the effectiveness of such transfer, to comply with
the provisions of Section 4.3.
ARTICLE XIII
NOTICES
-------
13.1. Notices. Except as otherwise permitted by Section 2.13 with respect
to borrowing notices, all notices, requests and other communications to any
party hereunder shall be in writing (including bank wire, facsimile transmission
or similar writing) and shall be given to such party: (x) in the case of the
Borrower, the Documentation Agent or the Administrative Agent, at its address or
facsimile number set forth on the signature pages hereof, (y) in the case of any
Lender, at its address or facsimile number set forth on the signature pages
hereof or in its administrative questionnaire or (z) in the case of any party,
such other address or facsimile number as such party may hereafter specify for
1A-222232
41
<PAGE>
the purpose by notice to the Administrative Agent, the Documentation Agent and
the Borrower. Each such notice, request or other communication shall be
effective (i) if given by facsimile transmission, when transmitted to the
facsimile number specified in this Section and confirmation of receipt is
received, (ii) if given by mail, 72 hours after such communication is deposited
in the mails with first class postage prepaid, addressed as aforesaid or (iii)
if given by any other means, when delivered at the address specified in this
Section; provided that notices to the Administrative Agent under Article II
shall not be effective until received.
13.2. Change of Address. The Borrower, the Administrative Agent, the
Documentation Agent and any Lender may each change the address for service of
notice upon it by a notice in writing to the other parties hereto.
ARTICLE XIV
COUNTERPARTS
------------
This Agreement may be executed in any number of counterparts, all of which
taken together shall constitute one agreement, and any of the parties hereto may
execute this Agreement by signing any such counterpart. This Agreement shall be
effective (with such effectiveness being retroactive to July 1, 1998) when it
has been executed by the Borrower, the Administrative Agent, the Documentation
Agent and the Lenders and each party has notified the Documentation Agent by
telefacsimile or telephone, that it has taken such action.
ARTICLE XV
CHOICE OF LAW, CONSENT TO JURISDICTION, WAIVER OF JURY TRIAL
------------------------------------------------------------
15.1. CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A
CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF CALIFORNIA, BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
15.2. CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY SUBMITS TO
THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR CALIFORNIA STATE
COURT SITTING IN LOS ANGELES IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO ANY LOAN DOCUMENTS AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT
ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED
IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER
HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A
COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT
THE RIGHT OF THE ADMINISTRATIVE AGENT, THE DOCUMENTATION AGENT OR ANY LENDER TO
1A-222232
42
<PAGE>
BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION.
ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE ADMINISTRATIVE AGENT, THE
DOCUMENTATION AGENT OR ANY LENDER OR ANY AFFILIATE OF THE ADMINISTRATIVE AGENT,
THE DOCUMENTATION AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY
MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN
DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN LOS ANGELES, CALIFORNIA.
15.3. WAIVER OF JURY TRIAL. THE BORROWER, THE ADMINISTRATIVE AGENT, THE
DOCUMENTATION AGENT AND EACH LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL
PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN
TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED
WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER.
1A-222232
43
<PAGE>
IN WITNESS WHEREOF, the Borrower, the Lenders, the Documentation Agent and
the Administrative Agent have executed this Agreement as of the date first above
written.
SOS STAFFING SERVICES, INC.
By:
Print Name:
Title:
1415 South Main Street
Salt Lake City, Utah 84115
Fax: (801) 483-4283
Attention: Mr. Gary Crook
THE FIRST NATIONAL BANK OF CHICAGO,
as the Documentation Agent and as a Lender
By:
Print Name:
Title:
777 South Figueroa Street, 4th Floor
Los Angeles, California 90017
Fax: (213) 683-4999
Attention: Mr. James P. Moore
With copy to:
One First National Plaza, 10th Floor
Chicago, Illinois 60670
Fax: (312) 732-4840
Attention: Ms. Sharon Bosch
FIRST SECURITY BANK, N.A.,
as the Administrative Agent and as a Lender
By:
Print Name:
Title:
15 East 100 South, 2nd Floor
Salt Lake City, Utah 84111
Fax: (801) 246-5532
Attention: Mr. David P. Williams
1A-222232
44
<PAGE>
EXHIBIT "A"
NOTE
Salt Lake City, Utah
--------------------
FOR VALUE RECEIVED, SOS STAFFING SERVICES, INC., a Utah corporation (the
"Borrower"), hereby unconditionally promises to pay to the order of (the
"Lender") at the office of First Security Bank, N.A., a national banking
association (the "Administrative Agent"), located at 15 East 100 South, 2nd
Floor, Salt Lake City, Utah 84111, in lawful money of the United States and in
immediately available funds, on the dates required under that certain Amended
and Restated Credit Agreement dated as of July 27, 1998 among the Borrower, the
lenders from time to time party thereto, including the Lender, the Documentation
Agent and the Administrative Agent (as the same may be amended or modified and
in effect from time to time, the "Agreement"), the aggregate unpaid principal
amount of all Loans made by the Lender to the Borrower pursuant to Article II of
the Agreement.
The Borrower further agrees to pay interest in like money and funds at the
office of the Administrative Agent referred to above, on the unpaid principal
balance hereof from the date advanced until paid in full at the applicable rates
and on the dates set forth in the Agreement. The Borrower shall pay the
principal of and accrued and unpaid interest on the Loans in full on or before
the Facility Termination Date. The holder of this Note is hereby authorized to
record the date and amount of each Loan and the date and amount of each payment
of principal and interest, and applicable interest rates and other information
with respect thereto, on the schedules annexed to and constituting a part of
this Note (or by any analogous method the holder hereof may elect consistent
with its customary practices) and any such recordation shall, absent manifest
error, constitute conclusive evidence of the accuracy of the information so
recorded; provided, however, that the failure to make a notation or the
inaccuracy of any notation shall not limit or otherwise affect the obligations
of the Borrower under the Agreement and this Note.
This Note is one of the Notes issued pursuant to, and is entitled to the
benefits of, the Agreement, to which reference is hereby made for a statement of
the terms and conditions governing this Note, including the terms and conditions
under which this Note may be prepaid or its maturity date accelerated. This Note
is guaranteed pursuant to the Guaranties, all as more specifically described in
the Agreement, and reference is made thereto for a statement of the terms and
provisions thereof. Capitalized terms used herein and not otherwise defined
herein are used with the meanings attributed to them in the Agreement.
SOS STAFFING SERVICES, INC.
By:
Print Name:
Title:
1A-222232
45
<PAGE>
SCHEDULE OF LOANS AND PAYMENTS
TO
NOTE OF SOS STAFFING SERVICES, INC.,
DATED _________, ____
Interest Principal Maturity Principal
Amount of Interest Interest Amount Unpaid Amount
Date Loan Period Rate Paid Balance Paid
- ---- ---------- ----------- --------- ------- --------- ----
1a-222232
46
<PAGE>
EXHIBIT "B"
FORM OF OPINION
July __, 1998
The Documentation Agent, the Administrative Agent and the Lenders who are
parties to the Agreement described below.
Ladies and Gentlemen:
We have acted as counsel for SOS Staffing Services, Inc. (the "Borrower")
and each of the Guarantors in connection with the execution and delivery of that
certain Amended and Restated Credit Agreement dated as of July 27, 1998 (the
"Agreement") among the Borrower, the Lenders named therein, The First National
Bank of Chicago, as the Documentation Agent, and First Security Bank, N.A., as
the Administrative Agent, and the other Loan Documents in connection therewith.
This opinion is being furnished to the Documentation Agent, the Administrative
Agent and the Lenders pursuant to the provisions of Section 4.1(ix) of the
Agreement. All capitalized terms used in this opinion and not otherwise defined
herein shall have the meanings attributed to them in the Agreement.
We have examined executed copies of each of the Loan Documents and copies
of the articles of incorporation and by-laws (with all amendments respectively
thereto) of each of the Borrower and the Guarantors, and certified copies of
resolutions adopted by the Board of Directors of the Borrower on _____________,
1998, authorizing the execution and delivery of the Loan Documents to which the
Borrower is party, and certified copies of resolutions adopted by the Board of
Directors of each of the Guarantors on ___________, 1998, authorizing the
execution and delivery of the Loan Documents to which such Guarantor is party.
We are generally familiar with the business and operations of the Borrower and
the Guarantors. We have examined such statutes, decisions and matters of law and
other documents as we deemed necessary to express the following opinions.
In our examination made for the purpose of rendering these opinions, we
have relied upon the certificates of incumbency this day furnished to us as to
the genuineness of all signatures. After due inquiry and examination, we have
assumed for the purpose of the opinions the authenticity of all other documents
submitted to us as originals and the conformity with originals of all other
documents submitted to us as certified copies. As to any questions of fact
material to such opinions, we have, when relevant facts were not independently
established, relied upon certificates of governmental officials and certificates
of officers of the Company, copies of which are attached hereto.
The opinions hereinafter expressed are subject to the following
qualifications:
(a) The effect of applicable bankruptcy and other similar laws
affecting the rights of creditors generally; and
(b) The effect of rules of law governing specific performance,
injunctive relief or other equitable remedies.
1a-222232
47
<PAGE>
Based upon the foregoing, it is our opinion that:
l. Each of the Borrower and its Subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all requisite authority to conduct its
business in each jurisdiction in which its business is conducted.
2. Each of the Borrower and the Guarantors has the corporate power and
authority and legal right to execute and deliver the Loan Documents to which it
is party and to perform its obligations thereunder. The execution and delivery
of the Loan Documents by the Borrower and the Guarantors and the performance of
their respective obligations thereunder have been duly authorized by proper
corporate proceedings, the Loan Documents to which the Borrower is party
constitute legal, valid and binding obligations of the Borrower enforceable
against the Borrower in accordance with their terms, and the Loan Documents to
which each Guarantor is party constitute legal, valid and binding obligations of
such Guarantor enforceable against such Guarantor in accordance with their
terms. The execution and delivery by the Borrower or any Guarantor of the Loan
Documents, the consummation of the transactions therein contemplated, and
compliance with the provisions thereof will not:
(a) require any consent of the Borrower's shareholders;
(b) violate any law, rule, regulation, order, writ, judgment,
injunction, decree or award binding on the Borrower or any of the
Guarantors or the Borrower's or any Guarantor's articles of
incorporation or by-laws or the provisions of any indenture, instrument
or agreement to which the Borrower or any of the Guarantors is a party
or is subject; or
(c) result in, or require, the creation or imposition of any
Lien pursuant to the provisions of any indenture, instrument or
agreement to which the Borrower or any of the Guarantors is a party or
is subject.
3. There is no litigation or proceeding against the Borrower or any of its
Subsidiaries which, if adversely determined, could have a Material Adverse
Effect.
4. No approval, authorization, consent, adjudication or order of any
governmental authority, which has not been obtained by the Borrower or any of
the Guarantors, is required to be obtained by the Borrower or any of the
Guarantors in connection with the execution and delivery of the Loan Documents,
the borrowings under the Agreement or in connection with the payment by the
Borrower or any Guarantor of the Obligations.
This opinion may be relied upon by the Documentation Agent, the
Administrative Agent, the Lenders and their participants, assignees and other
transferees.
Very truly yours,
------------
1a-222232
48
<PAGE>
EXHIBIT "C"
COMPLIANCE CERTIFICATE
To: The Lenders parties to the
Agreement Described Below
This Compliance Certificate is furnished pursuant to that certain Amended
and Restated Credit Agreement dated as of July 27, 1998 (as amended, modified,
renewed or extended from time to time, the "Agreement") among SOS Staffing
Services, Inc. (the "Borrower"), the lenders party thereto, The First National
Bank of Chicago, as the Documentation Agent, and First Security Bank, N.A., as
the Administrative Agent. Unless otherwise defined herein, capitalized terms
used in this Compliance Certificate have the meanings ascribed thereto in the
Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly elected of the Borrower;
----------------------
2. I have reviewed the terms of the Agreement and I have made, or have
caused to be made under my supervision, a detailed review of the transactions
and conditions of the Borrower and its Subsidiaries during the accounting period
covered by the attached financial statements;
3. The examinations described in paragraph 2 did not disclose, and I have
no knowledge of, the existence of any condition or event which constitutes a
Default or Unmatured Default during or at the end of the accounting period
covered by the attached financial statements or as of the date of this
Certificate, except as set forth below; and
4. Schedule I attached hereto sets forth financial data and computations
evidencing the Borrower's compliance with certain covenants of the Agreement,
all of which data and computations are true, complete and correct.
5. Schedule II attached hereto sets forth the determination of the interest
rate to be paid for Advances commencing the first day of the month following the
delivery hereof.
6. Schedule III attached hereto sets forth the various reports and
deliveries which are required under the Credit Agreement and the other Loan
Documents and the status of compliance.
Described below are the exceptions, if any, to paragraph 3 by listing, in
detail, the nature of the condition or event, the period during which it has
existed and the action which the Borrower has taken, is taking, or proposes to
take with respect to each such condition or event:
1a-222232
49
<PAGE>
- ----------------------------------------
- ----------------------------------------
- ----------------------------------------
- ----------------------------------------
The foregoing certifications, together with the computations set forth in
Schedule I and Schedule II hereto and the financial statements delivered with
this Certificate in support hereof, are made and delivered this day of , 19 .
----------------------
1a-222232
50
<PAGE>
SCHEDULE I TO COMPLIANCE CERTIFICATE
Compliance as of _________, 199_ with
Provisions of Sections 6.16, 6.18, 6.19 and 6.20 of
the Agreement
1a-222232
51
<PAGE>
SCHEDULE II TO COMPLIANCE CERTIFICATE
Rate Determination
1a-222232
52
<PAGE>
SCHEDULE III TO COMPLIANCE CERTIFICATE
Reports and Deliveries
1a-222232
53
<PAGE>
EXHIBIT "D"
ASSIGNMENT AGREEMENT
This Assignment Agreement (this "Assignment Agreement") between (the
"Assignor") and (the "Assignee") is dated as of , 19 . The parties hereto agree
as follows:
1. PRELIMINARY STATEMENT. The Assignor is a party to a Credit Agreement
(which, as it may be amended, modified, renewed or extended from time to time is
herein called the "Credit Agreement") described in Item 1 of Schedule 1 attached
hereto ("Schedule 1"). Capitalized terms used herein and not otherwise defined
herein shall have the meanings attributed to them in the Credit Agreement.
2. ASSIGNMENT AND ASSUMPTION. The Assignor hereby sells and assigns to the
Assignee, and the Assignee hereby purchases and assumes from the Assignor, an
interest in and to the Assignor's rights and obligations under the Credit
Agreement such that after giving effect to such assignment the Assignee shall
have purchased pursuant to this Assignment Agreement the percentage interest
specified in Item 3(b) of Schedule 1 of all outstanding rights and obligations
under the Credit Agreement and the other Loan Documents. The aggregate
Commitment purchased by the Assignee hereunder is set forth in Item 4 of
Schedule 1.
3. EFFECTIVE DATE. The effective date of this Assignment Agreement (the
"Effective Date") shall be the later of the date specified in Item 5 of Schedule
1 and the date a Notice of Assignment substantially in the form of Exhibit "I"
attached hereto has been delivered to the Documentation Agent. Such Notice of
Assignment must include any consents required to be delivered to the
Documentation Agent by Section 12.3.1 of the Credit Agreement. In no event will
the Effective Date occur if the payments required to be made by the Assignee to
the Assignor on the Effective Date under Sections 4 and 5 hereof are not made on
the proposed Effective Date. The Assignor will notify the Assignee of the
proposed Effective Date no later than the Business Day prior to the proposed
Effective Date. As of the Effective Date, (i) the Assignee shall have the rights
and obligations of a Lender under the Loan Documents with respect to the rights
and obligations assigned to the Assignee hereunder and (ii) the Assignor shall
relinquish its rights and be released from its corresponding obligations under
the Loan Documents with respect to the rights and obligations assigned to the
Assignee hereunder.
4. PAYMENTS OBLIGATIONS. On and after the Effective Date, the Assignee
shall be entitled to receive from the Administrative Agent all payments of
principal, interest and fees with respect to the interest assigned hereby. The
Assignee shall advance funds directly to the Administrative Agent with respect
to all Loans and reimbursement payments made on or after the Effective Date with
respect to the interest assigned hereby. In consideration for the sale and
assignment of Loans hereunder, (i) the Assignee shall pay the Assignor, on the
Effective Date, an amount equal to the principal amount of the portion of all
Floating Rate Loans assigned to the Assignee hereunder and (ii) with respect to
each Fixed Rate Loan made by the Assignor and assigned to the Assignee hereunder
1a-222232
54
<PAGE>
which is outstanding on the Effective Date, (a) on the last day of the Interest
Period therefor or (b) on such earlier date agreed to by the Assignor and the
Assignee or (c) on the date on which any such Fixed Rate Loan either becomes due
(by acceleration or otherwise) or is prepaid (the date as described in the
foregoing clauses (a), (b) or (c) being hereinafter referred to as the "Payment
Date"), the Assignee shall pay the Assignor an amount equal to the principal
amount of the portion of such Fixed Rate Loan assigned to the Assignee which is
outstanding on the Payment Date. If the Assignor and the Assignee agree that the
Payment Date for such Fixed Rate Loan shall be the Effective Date, they shall
agree to the interest rate applicable to the portion of such Loan assigned
hereunder for the period from the Effective Date to the end of the existing
Interest Period applicable to such Fixed Rate Loan (the "Agreed Interest Rate")
and any interest received by the Assignee in excess of the Agreed Interest Rate
shall be remitted to the Assignor. In the event interest for the period from the
Effective Date to but not including the Payment Date is not paid by the Borrower
with respect to any Fixed Rate Loan sold by the Assignor to the Assignee
hereunder, the Assignee shall pay to the Assignor interest for such period on
the portion of such Fixed Rate Loan sold by the Assignor to the Assignee
hereunder at the applicable rate provided by the Credit Agreement. In the event
a prepayment of any Fixed Rate Loan which is existing on the Payment Date and
assigned by the Assignor to the Assignee hereunder occurs after the Payment Date
but before the end of the Interest Period applicable to such Fixed Rate Loan,
the Assignee shall remit to the Assignor the excess of the prepayment penalty
paid with respect to the portion of such Fixed Rate Loan assigned to the
Assignee hereunder over the amount which would have been paid if such prepayment
penalty was calculated based on the Agreed Interest Rate. The Assignee will also
promptly remit to the Assignor (i) any principal payments received from the
Administrative Agent with respect to Fixed Rate Loans prior to the Payment Date
and (ii) any amounts of interest on Loans and fees received from the
Administrative Agent which relate to the portion of the Loans assigned to the
Assignee hereunder for periods prior to the Effective Date, in the case of
Floating Rate Loans or fees, or the Payment Date, in the case of Fixed Rate
Loans, and not previously paid by the Assignee to the Assignor. In the event
that either party hereto receives any payment to which the other party hereto is
entitled under this Assignment Agreement, then the party receiving such amount
shall promptly remit it to the other party hereto.
5. FEES PAYABLE BY THE ASSIGNEE. The Assignee shall pay to the Assignor a
fee on each day on which a payment of interest or fees is made under the Credit
Agreement with respect to the amounts assigned to the Assignee hereunder (other
than a payment of interest or fees for the period prior to the Effective Date
or, in the case of Fixed Rate Loans, the Payment Date, which the Assignee is
obligated to deliver to the Assignor pursuant to Section 4 hereof). The amount
of such fee shall be the difference between (i) the interest or fee, as
applicable, paid with respect to the amounts assigned to the Assignee hereunder
and (ii) the interest or fee, as applicable, which would have been paid with
respect to the amounts assigned to the Assignee hereunder if each interest rate
was of 1% less than the interest rate paid by the Borrower or if the fee was of
1% less than the fee paid by the Borrower, as applicable. In addition, the
Assignee agrees to pay % of the recordation fee required to be paid to the
Administrative Agent in connection with this Assignment Agreement.
6. REPRESENTATIONS OF THE ASSIGNOR; LIMITATIONS ON THE ASSIGNOR'S
LIABILITY. The Assignor represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim created by the Assignor. It is
understood and agreed that the assignment and assumption hereunder are made
without recourse to the Assignor and that the Assignor makes no other
1a-222232
55
<PAGE>
representation or warranty of any kind to the Assignee. Neither the Assignor nor
any of its officers, directors, employees, agents or attorneys shall be
responsible for (i) the due execution, legality, validity, enforceability,
genuineness, sufficiency or collectability of any Loan Document, including
without limitation, documents granting the Assignor and the other Lenders a
security interest in assets of the Borrower or any guarantor, (ii) any
representation, warranty or statement made in or in connection with any of the
Loan Documents, (iii) the financial condition or creditworthiness of the
Borrower or any guarantor, (iv) the performance of or compliance with any of the
terms or provisions of any of the Loan Documents, (v) inspecting any of the
Property, books or records of the Borrower, (vi) the validity, enforceability,
perfection, priority, condition, value or sufficiency of any collateral securing
or purporting to secure the Loans or (vii) any mistake, error of judgment, or
action taken or omitted to be taken in connection with the Loans or the Loan
Documents.
7. REPRESENTATIONS OF THE ASSIGNEE. The Assignee (i) confirms that it has
received a copy of the Credit Agreement, together with copies of the financial
statements requested by the Assignee and such other documents and information as
it has deemed appropriate to make its own credit analysis and decision to enter
into this Assignment Agreement, (ii) agrees that it will, independently and
without reliance upon the Administrative Agent, the Documentation Agent, the
Assignor or any other Lender and based on such documents and information at it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Loan Documents, (iii) appoints and
authorizes the Administrative Agent and the Documentation Agent to take such
action as agent on its behalf and to exercise such powers under the Loan
Documents as are delegated to the Administrative Agent and the Documentation
Agent by the terms thereof, together with such powers as are reasonably
incidental respectively thereto, (iv) agrees that it will perform in accordance
with their terms all of the obligations which by the terms of the Loan Documents
are required to be performed by it as a Lender, (v) agrees that its payment
instructions and notice instructions are as set forth in the attachment to
Schedule 1, (vi) confirms that none of the funds, monies, assets or other
consideration being used to make the purchase and assumption hereunder are "plan
assets" as defined under ERISA and that its rights, benefits and interests in
and under the Loan Documents will not be "plan assets" under ERISA, and *[(vii)
attaches the forms prescribed by the Internal Revenue Service of the United
States certifying that the Assignee is entitled to receive payments under the
Loan Documents without deduction or withholding of any United States federal
income taxes].*
*to be inserted if the Assignee is not incorporated under the laws of the United
States, or a state thereof.
8. INDEMNITY. The Assignee agrees to indemnify and hold the Assignor
harmless against any and all losses, costs and expenses (including, without
limitation, reasonable attorneys' fees) and liabilities incurred by the Assignor
in connection with or arising in any manner from the Assignee's non-performance
of the obligations assumed under this Assignment Agreement.
9. SUBSEQUENT ASSIGNMENTS. After the Effective Date, the Assignee shall
have the right pursuant to Section 12.3.1 of the Credit Agreement to assign the
rights which are assigned to the Assignee hereunder to any entity or person,
provided that (i) any such subsequent assignment does not violate any of the
terms and conditions of the Loan Documents or any law, rule, regulation, order,
writ, judgment, injunction or decree and that any consent required under the
terms of the Loan Documents has been obtained and (ii) unless the prior written
1a-222232
56
<PAGE>
consent of the Assignor is obtained, the Assignee is not thereby released from
its obligations to the Assignor hereunder, if any remain unsatisfied, including,
without limitation, its obligations under Sections 4, 5 and 8 hereof.
10. REDUCTIONS OF AGGREGATE COMMITMENT. If any reduction in the Aggregate
Commitment occurs between the date of this Assignment Agreement and the
Effective Date, the percentage interest specified in Item 3 of Schedule 1 shall
remain the same, but the dollar amount purchased shall be recalculated based on
the reduced Aggregate Commitment.
11. ENTIRE AGREEMENT. This Assignment Agreement and the attached Notice of
Assignment embody the entire agreement and understanding between the parties
hereto and supersede all prior agreements and understandings between the parties
hereto relating to the subject matter hereof.
12. GOVERNING LAW. This Assignment Agreement shall be governed by the
internal law, and not the law of conflicts, of the State of California.
13. NOTICES. Notices shall be given under this Assignment Agreement in the
manner set forth in the Credit Agreement. For the purpose hereof, the addresses
of the parties hereto (until notice of a change is delivered) shall be the
address set forth in the attachment to Schedule 1.
IN WITNESS WHEREOF, the parties hereto have executed this Assignment
Agreement by their duly authorized officers as of the date first above written.
[NAME OF ASSIGNOR]
By:
---------------------
Title:
------------------
------------------
------------------
[NAME OF ASSIGNEE]
By:
---------------------
Title:
------------------
------------------
------------------
1a-222232
57
<PAGE>
SCHEDULE 1
to Assignment Agreement
1. Description and Date of Credit Agreement:
2. Date of Assignment Agreement: , 19
------------
3. Amounts (As of Date of Item 2 above):
a. Aggregate Commitment
under the
Credit Agreement $
----------
b. Assignee's percentage
of the Aggregate Commitment
purchased
under the Assignment
Agreement %
-----
4. Assignee's Commitment purchased
under the Assignment Agreement $
---------
5. Proposed Effective Date:
-----------
Accepted and Agreed:
[NAME OF ASSIGNOR] [NAME OF ASSIGNEE]
By: By:
------------------------ ---------------------------
Title: Title:
--------------------- ------------------------
1a-222232
58
<PAGE>
Attachment to SCHEDULE 1 to ASSIGNMENT AGREEMENT
Attach Assignor's Administrative Information Sheet, which must
include notice address for the Assignee
1a-222232
59
<PAGE>
EXHIBIT "I"
to Assignment Agreement
NOTICE
OF ASSIGNMENT
-------------
, 19
-----
To: THE FIRST NATIONAL BANK OF CHICAGO
From: [NAME OF ASSIGNOR] (the "Assignor")
[NAME OF ASSIGNEE] (the "Assignee")
1. We refer to that Credit Agreement (the "Credit Agreement")
described in Item 1 of Schedule 1 attached hereto ("Schedule 1"). Capitalized
terms used herein and not otherwise defined herein shall have the meanings
attributed to them in the Credit Agreement.
2. This Notice of Assignment (this "Notice") is given and
delivered to the Documentation Agent pursuant to Section 12.3.2 of the Credit
Agreement.
3. The Assignor and the Assignee have entered into an Assignment
Agreement, dated as of , 19 (the "Assignment"), pursuant to which, among other
things, the Assignor has sold, assigned, delegated and transferred to the
Assignee, and the Assignee has purchased, accepted and assumed from the Assignor
the percentage interest specified in Item 3 of Schedule 1 of all outstandings,
rights and obligations under the Credit Agreement relating to the facilities
listed in Item 3 of Schedule 1. The Effective Date of the Assignment shall be
the later of the date specified in Item 5 of Schedule 1 or two Business Days (or
such shorter period as agreed to by the Documentation Agent) after this Notice
of Assignment and any consents and fees required by Sections 12.3.1 and 12.3.2
of the Credit Agreement have been delivered to the Documentation Agent, provided
that the Effective Date shall not occur if any condition precedent agreed to by
the Assignor and the Assignee has not been satisfied.
4. The Assignor and the Assignee hereby give to the Borrower and
the Documentation Agent notice of the assignment and delegation referred to
herein. The Assignor will confer with the Documentation Agent before the date
specified in Item 5 of Schedule 1 to determine if the Assignment Agreement will
become effective on such date pursuant to Section 3 hereof, and will confer with
the Documentation Agent to determine the Effective Date pursuant to Section 3
hereof if it occurs thereafter. The Assignor shall notify the Documentation
Agent if the Assignment Agreement does not become effective on any proposed
Effective Date as a result of the failure to satisfy the conditions precedent
agreed to by the Assignor and the Assignee. At the request of the Documentation
Agent, the Assignor will give the Documentation Agent written confirmation of
the satisfaction of the conditions precedent.
5. The Assignor or the Assignee shall pay to the Documentation
Agent on or before the Effective Date the processing fee of $3,500 required by
Section 12.3.2 of the Credit Agreement.
1a-222232
60
<PAGE>
6. The Assignor and the Assignee request and direct that the
Documentation Agent prepare and cause the Borrower to execute and deliver a new
Note, if appropriate, to the Assignee. The Assignor, if it will no longer be a
Lender, agrees to deliver to the Documentation Agent the original Note received
by it from the Borrower upon its receipt of the appropriate amount.
7. The Assignee advises the Documentation Agent that notice and
payment instructions are set forth in the attachment to Schedule 1.
8. The Assignee hereby represents and warrants that none of the
funds, monies, assets or other consideration being used to make the purchase
pursuant to the Assignment are "plan assets" as defined under ERISA and that its
rights, benefits, and interests in and under the Loan Documents will not be
"plan assets" under ERISA.
9. The Assignee authorizes the Documentation Agent and the
Administrative Agent to act as its agent under the Loan Documents in accordance
with the terms thereof. The Assignee acknowledges that neither the Documentation
Agent nor the Administrative Agent has any duty to supply information with
respect to the Borrower or the Loan Documents to the Assignee until the Assignee
becomes a party to the Credit Agreement.
NAME OF ASSIGNOR NAME OF ASSIGNEE
By: By:
---------------------- -----------------------
Title: Title:
------------------- --------------------
ACKNOWLEDGED AND CONSENTED TO BY
THE FIRST NATIONAL BANK OF CHICAGO,
as Documentation Agent
By:
----------------------
Title:
-------------------
[Attach photocopy of Schedule 1 to Assignment]
1a-222232
61
<PAGE>
EXHIBIT "E"
LOAN/CREDIT RELATED MONEY TRANSFER INSTRUCTION
To First Security Bank , N.A.,
as Administrative Agent (the "Administrative Agent") under the Credit Agreement
Described Below.
Re: Amended and Restated Credit Agreement, dated July 27, 1998 (as the same
may be amended or modified, the "Credit Agreement"), among SOS Staffing
Services, Inc. (the "Borrower"), the Lenders named therein, the
Documentation Agent, and the Administrative Agent. Capitalized terms
used herein and not otherwise defined herein shall have the meanings
assigned thereto in the Credit Agreement.
The Administrative Agent is specifically authorized and directed to act
upon the following standing money transfer instructions with respect to the
proceeds of Advances or other extensions of credit from time to time until
receipt by the Administrative Agent of a specific written revocation of such
instructions by the Borrower, provided, however, that the Administrative Agent
may otherwise transfer funds as hereafter directed in writing by the Borrower in
accordance with Section 13.1 of the Credit Agreement or based on any telephonic
notice made in accordance with Section 2.13 of the Credit Agreement.
Facility Identification Number(s)
-----------------------------------------------
Customer/Account Name
-----------------------------------------------------------
Transfer Funds To
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
For Account No.
-----------------------------------------------------------------
Reference/Attention To
----------------------------------------------------------
Authorized Officer (Customer Representative) Date
----------------------------
------------------
- ------------------------------ --------------------------------
(Please Print) Signature
Bank Officer Name Date
------------------------------
- ------------------------------ --------------------------------
(Please Print) Signature
(Deliver Completed Form to Credit Support Staff For Immediate Processing)
1a-222232
62
<PAGE>
EXHIBIT "F"
GUARANTY
THIS GUARANTY (the "Guaranty") is made and dated as of the ___
day of ______, 19__ by _________________________, a _______________________
("Guarantor").
RECITALS
A. This Guaranty is being executed and delivered to The First National
Bank of Chicago, acting in its capacity as documentation agent (in such
capacity, the "Documentation Agent") for the lenders from time to time party to
that certain Amended and Restated Credit Agreement dated as of July 27, 1998 by
and among SOS Staffing Services, Inc. (the "Borrower"), the Administrative
Agent, the Documentation Agent, and the lenders from time to time party thereto
(the "Lenders") (as amended, extended and replaced from time to time, the
"Credit Agreement," and with capitalized terms not otherwise defined herein used
with the meanings given such terms in the Credit Agreement).
B. Pursuant to the Credit Agreement the Lenders have agreed to extend
credit to the Borrower on the terms and subject to the conditions set forth
therein.
C. Pursuant to the terms of the Credit Agreement, Guarantor is
required, among other things, to execute and deliver this Guaranty to the
Documentation Agent for the benefit of the Lenders.
NOW, THEREFORE, in consideration of the above Recitals and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, Guarantor hereby agrees as follows:
AGREEMENT
1. Guarantor hereby absolutely and unconditionally guarantees
the payment when due, upon maturity, acceleration or otherwise, of all
obligations of the Borrower to the Lenders under the Credit Agreement and the
other Loan Documents (as defined in the Credit Agreement), whether heretofore,
now, or hereafter made, incurred or created, whether voluntary or involuntary
and however arising, absolute or contingent, liquidated or unliquidated,
determined or undetermined (collectively and severally, the "Guaranteed
Obligations"), whether or not such Guaranteed Obligations are from time to time
reduced, or extinguished and thereafter increased or incurred, whether the
Borrower may be liable individually or jointly with others, whether or not
recovery upon such Guaranteed Obligations may be or hereafter become barred by
any statute of limitations, and whether or not such Guaranteed Obligations may
be or hereafter become otherwise unenforceable.
2. Guarantor hereby absolutely and unconditionally guarantees
the payment of the Guaranteed Obligations, whether or not due or payable by the
Borrower, upon: (a) the dissolution, insolvency or business failure of, or any
assignment for benefit of creditors by, or commencement of any bankruptcy,
reorganization, arrangement, moratorium or other debtor relief proceedings by or
against, either the Borrower or Guarantor, or (b) the appointment of a receiver
1a-222232
63
<PAGE>
for, or the attachment, restraint of or making or levying of any order of court
or legal process affecting, the property of either the Borrower or Guarantor,
and unconditionally promises to pay such Guaranteed Obligations to the
Documentation Agent for the benefit of the Lenders, or order, on demand, in
lawful money of the United States.
3. The liability of Guarantor hereunder is exclusive and
independent of any security for or other guaranty of the Guaranteed Obligations,
whether executed by Guarantor or by any other party, and the liability of
Guarantor hereunder is not affected or impaired by (a) any direction of
application of payment by the Borrower or by any other party, or (b) any other
guaranty, undertaking or maximum liability of Guarantor or of any other party as
to the Guaranteed Obligations, or (c) any payment on or in reduction of any such
other guaranty or undertaking, or (d) any revocation or release of any
obligations of any other guarantor of the Guaranteed Obligations, or (e) any
dissolution, termination or increase, decrease or change in personnel of
Guarantor, or (f) any payment made to the Administrative Agent, the
Documentation Agent or any Lender on the Guaranteed Obligations which the
Administrative Agent, the Documentation Agent or any Lender repays to the
Borrower pursuant to court order in any bankruptcy, reorganization, arrangement,
moratorium or other debtor relief proceeding, and Guarantor waives any right to
the deferral or modification of Guarantor's obligations hereunder by reason of
any such proceeding.
4. (a) The obligations of Guarantor hereunder are independent
of the obligations of the Borrower with respect to the Guaranteed Obligations,
and a separate action or actions may be brought and prosecuted against Guarantor
whether or not action is brought against the Borrower and whether or not the
Borrower be joined in any such action or actions. Guarantor waives, to the
fullest extent permitted by law, the benefit of any statute of limitations
affecting its liability hereunder or the enforcement thereof. Any payment by the
Borrower or other circumstance which operates to toll any statute of limitations
as to the Borrower shall operate to toll the statute of limitations as to
Guarantor.
(b) All payments made by Guarantor under this Guaranty
shall be made without set-off or counterclaim and free and clear of and without
deductions for any present or future taxes, fees, withholdings or conditions of
any nature ("Taxes"). Guarantor shall pay any such Taxes, including Taxes on any
amounts so paid, and will promptly furnish any Lender copies of any tax receipts
or such other evidence of payment as such Lender may require.
5. Guarantor authorizes the Administrative Agent, the
Documentation Agent and Lenders (whether or not after termination of this
Guaranty), without notice or demand (except as shall be required by applicable
statute and cannot be waived), and without affecting or impairing its liability
hereunder, from time to time to (a) renew, compromise, extend, increase,
accelerate or otherwise change the time for payment of, or otherwise change the
terms of Guaranteed Obligations or any part thereof, including increase or
decrease of the rate of interest thereon; (b) take and hold security for the
payment of this Guaranty or the Guaranteed Obligations and exchange, enforce,
waive and release any such security; (c) apply such security and direct the
order or manner of sale thereof as the Administrative Agent, the Documentation
Agent and Lenders in their discretion may determine; and (d) release or
substitute any one or more endorsers, guarantors, the Borrower or other
obligors. The Administrative Agent, the Documentation Agent and Lenders may,
without notice to or the further consent of the Borrower or Guarantor, assign
this Guaranty in whole or in part to any person acquiring an interest in the
Guaranteed Obligations.
1a-222232
64
<PAGE>
6. It is not necessary for the Documentation Agent, the
Administrative Agent or any Lender to inquire into the capacity or power of the
Borrower or the officers acting or purporting to act on their behalf, and
Guaranteed Obligations made or created in reliance upon the professed exercise
of such powers shall be guaranteed hereunder.
7. Guarantor waives any right to require the Documentation
Agent, the Administrative Agent or any Lender to (a) proceed against the
Borrower or any other party; (b) proceed against or exhaust any security held
from the Borrower; or (c) pursue any other remedy whatsoever. Guarantor waives
any personal defense based on or arising out of any personal defense of the
Borrower other than payment in full of the Guaranteed Obligations, including,
without limitation, any defense based on or arising out of the disability of
either the Borrower, or the unenforceability of the Guaranteed Obligations or
any part thereof from any cause, or the cessation from any cause of the
liability of the Borrower other than payment in full of the Guaranteed
Obligations. The Documentation Agent, the Administrative Agent and the Lenders
may, at their election, foreclose on any security held for the Guaranteed
Obligations by one or more judicial or nonjudicial sales, or exercise any other
right or remedy they may have against the Borrower, or any security, without
affecting or impairing in any way the liability of Guarantor hereunder except to
the extent the Guaranteed Obligations have been paid. Guarantor waives all
rights and defenses arising out of an election of remedies, even though that
election of remedies, such as a nonjudicial foreclosure with respect to security
for a guaranteed obligation, has destroyed Guarantor's rights of subrogation and
reimbursement against the principal by operation of Section 580d of the
California Code of Civil Procedure.
8. Guarantor hereby waives any claim or other rights which
Guarantor may now have or may hereafter acquire against the Borrower or any
other guarantor of all or any of the Guaranteed Obligations that arise from the
existence or performance of Guarantor's obligations under this Guaranty or any
other of the Loan Documents (all such claims and rights being referred to as the
"Guarantor's Conditional Rights"), including, without limitation, any right of
subrogation, reimbursement, exoneration, contribution, or indemnification, any
right to participate in any claim or remedy which the Documentation Agent, the
Administrative Agent or any Lender has against the Borrower or any collateral
which the Documentation Agent, the Administrative Agent or any Lender now has or
hereafter acquires for the Guaranteed Obligations, whether or not such claim,
remedy or right arises in equity or under contract, statute or common law, by
any payment made hereunder or otherwise, including, without limitation, the
right to take or receive from the Borrower, directly or indirectly, in cash or
other property or by setoff or in any other manner, payment or security on
account of such claim or other rights. If, notwithstanding the foregoing
provisions, any amount shall be paid to Guarantor on account of Guarantor's
Conditional Rights and either (a) such amount is paid to Guarantor at any time
when the Guaranteed Obligations shall not have been paid or performed in full,
or (b) regardless of when such amount is paid to Guarantor any payment made by
the Borrower to the Documentation Agent, the Administrative Agent or any Lender
is at any time determined to be a preferential payment, then such amount paid to
Guarantor shall be deemed to be held in trust for the benefit of the Lenders and
shall forthwith be paid to the Documentation Agent for the benefit of the
Lenders to be credited and applied upon the Guaranteed Obligations, whether
matured or unmatured, in such order and manner as Lenders, in their sole
discretion, shall determine. To the extent that any of the provisions of this
Paragraph 8 shall not be enforceable, Guarantor agrees that until such time as
the Guaranteed Obligations have been paid and performed in full and the period
of time has expired during which any payment made by the Borrower or Guarantor
may be determined to be a preferential payment, Guarantor's Conditional Rights
1a-222232
65
<PAGE>
to the extent not validly waived shall be subordinate to the Lenders' right to
full payment and performance of the Guaranteed Obligations and Guarantor shall
not seek to enforce Guarantor's Conditional Rights during such period.
9. Guarantor waives all presentments, demands for
performance, protests and notices, including, without limitation, notices of
nonperformance, notices of protest, notices of dishonor, notices of acceptance
of this Guaranty, and notices of the existence, creation or incurring of new or
additional Guaranteed Obligations. Guarantor assumes all responsibility for
being and keeping itself informed of either the Borrower's financial condition
and assets, and of all other circumstances bearing upon the risk of nonpayment
of the Guaranteed Obligations and the nature, scope and extent of the risks
which Guarantor assumes and incurs hereunder, and agrees that neither the
Documentation Agent, the Administrative Agent nor any Lender shall have a duty
to advise Guarantor of information known to it regarding such circumstances or
risks.
10. In addition to the Guaranteed Obligations, Guarantor
agrees to pay reasonable attorneys' fees and all other reasonable costs and
expenses incurred by the Documentation Agent, the Administrative Agent and the
Lenders in enforcing this Guaranty in any action or proceeding arising out of or
relating to this Guaranty.
11. Guarantor has reviewed and approved the Credit Agreement
and the Loan Documents. Guarantor agrees to execute any and all further
documents, instruments and agreements as the Documentation Agent from time to
time reasonably requests to evidence Guarantor's obligations hereunder.
12. This Guaranty and the other Loan Documents shall be
governed by and construed in accordance with the substantive laws of the State
of California.
_________________________________________, a
______________________ corporation
By: ________________________________
Name: ______________________________
Title: _______________________________
1a-222232
66
<PAGE>
EXHIBIT "G"
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (the "Subordination Agreement")
is made and dated as of the ___ day of _______, 19__ by and among SOS STAFFING
SERVICES, INC., a Utah corporation (the "Borrower"), THE FIRST NATIONAL BANK OF
CHICAGO, acting in its capacity as documentation agent (in such capacity, the
"Documentation Agent") for the lenders from time to time party to that certain
Amended and Restated Credit Agreement dated as of July 27, 1998 by and among the
Borrower, the Administrative Agent, the Documentation Agent, and the lenders
from time to time party thereto (the "Lenders") (as amended, extended and
replaced from time to time, the "Credit Agreement," and with capitalized terms
not otherwise defined herein used with the meanings given such terms in the
Credit Agreement), and ____________________________, a _________________
corporation (the "Creditor").
RECITALS
A. Pursuant to the Credit Agreement the Lenders have agreed to
extend credit to the Borrower on the terms and subject to the conditions set
forth therein.
B. Pursuant to the terms of the Credit Agreement, the Creditor
is required to subordinate its right to the payment of monies from the Borrower
to the payment and performance of the Obligations under (and as defined in) the
Credit Agreement (the "Senior Obligations"), and to execute and deliver this
Subordination Agreement to the Documentation Agent for the benefit of the
Lenders as evidence thereof.
NOW, THEREFORE, in consideration of the above Recitals and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
1. The Creditor has extended and may in the future extend
credit to the Borrower from time to time. The principal of all now existing and
hereafter arising indebtedness of the Borrower to the Creditor together with
accrued but unpaid interest thereon is hereinafter referred to as the "Claims".
2. The Creditor is or will be the sole and absolute owner of
the Claims and has not sold, assigned, transferred or otherwise disposed of any
right it may have to repayment of the Claims or any security therefor.
3. The Claims and all rights and remedies of the Creditor with
respect thereto and any lien securing payment thereof are and shall continue to
be subject, subordinate and rendered junior in the right of payment to the
Senior Obligations, as the same may be extended, amended or replaced form time
to time.
1a-222232
67
<PAGE>
4. Unless and until the Senior Obligations shall have been
fully paid and discharged and any agreement by the Lenders to make further loans
or advances to the Borrower shall have terminated:
(a) The Borrower will not make or give, and the
Creditor will not receive, directly or indirectly, any payment, advance, credit
or further security of any kind whatsoever on account of the Claims, or any new
or further evidence thereof;
(b) The Creditor will not sell, assign, transfer or
endorse the Claims or any part or evidence thereof;
(c) The Creditor will not modify the Claims or any
part or evidence thereof; and
(d) The Creditor will not take, or permit any action
to be taken, to assert, collect or enforce the Claims
or any part thereof.
5. Each of the Borrower and the Creditor waives notice of
acceptance of this Subordination Agreement by the Lenders, and each of the
Creditor waives notice of and consent to the amount and terms of any loan or
loans which the Lenders may from time to time make to the Borrower and any
renewal or extension thereof and any action which the Lenders in their sole and
absolute discretion may take or omit to take with respect thereto.
6. This Subordination Agreement shall constitute a continuing
agreement of subordination and the Lenders may, from time to time and without
notice to the Creditor, lend money to or make other financial arrangements with
the Borrower in reliance hereon until written notice of termination shall be
delivered by the Creditor to the Lenders by certified mail, return receipt
requested. The receipt by the Lenders of such notice shall not affect this
Subordination Agreement as it relates to any Senior Obligations then existing,
to any Senior Obligations incurred thereafter pursuant to a previous commitment
by the Lenders or to any amendments to, or extensions or renewals of, any such
Senior Obligations.
7. In the event of a default in the performance or observance
of any of the foregoing, the Senior Obligations shall forthwith become due and
payable at the election of the Lenders, without presentment, demand or notice of
any kind, all of which are hereby waived.
8. The Creditor agrees as follows:
(a) Upon any distribution of all of the assets of the
Borrower to creditors of the Borrower upon the dissolution, winding up,
liquidation, arrangement, or reorganization of the Borrower, whether in any
bankruptcy, insolvency, arrangement, reorganization or receivership proceeding
or upon an assignment for the benefit of creditors or any other marshalling of
the assets and liabilities of the Borrower or otherwise, any payment or
distribution of any kind (whether in cash, property or securities) which
otherwise would be payable or deliverable upon or with respect to the Claims
shall be paid or delivered directly to the Administrative Agent for application
(in the case of cash) to, or as collateral (in the case of non-cash property or
securities) for, the payment or prepayment of the Senior Obligations until the
Senior Obligations shall have been paid in full.
1a-222232
68
<PAGE>
(b) If any proceeding referred to in subsection (a)
above is commenced by or against the Borrower:
(1) The Lenders are hereby irrevocably
authorized and empowered (in their own name or in the name of the Creditor or
otherwise), but shall have no obligation, to demand, sue for, collect and
receive every payment or distribution referred to in subsection (a) above and
give acquittance therefor and to file claims and proofs of claim and take such
other action (including, without limitation, voting the Claims or enforcing any
security interest or other lien securing payment of the Claims) as the Lenders
may deem necessary or advisable for the exercise or enforcement of any of the
rights or interests of the Lenders hereunder; and
(2) The Creditor shall duly and promptly
take such action as the Lenders may request (i) to collect the Claims for
account of the Lenders and to file appropriate claims or proofs of claim in
respect of the Claims, (ii) to execute and deliver to the Administrative Agent
such powers of attorney, assignments, or other instruments as it may request in
order to enable it to enforce any and all claims with respect to, and any
security interests and other liens securing payment of, the Claims, and (iii) to
collect and receive any and all payments or distributions which may be payable
or deliverable upon or with respect to the Claims.
(c) All payments or distributions upon or with
respect to the Claims which are received by the Creditor contrary to the
provisions of this Subordination Agreement shall be received in trust for the
benefit of the Lenders, shall be segregated from other funds and property held
by the Creditor and shall be forthwith paid over to the Administrative Agent in
the same form as so received (with any necessary endorsement) to be applied (in
the case of cash) to, or held as collateral (in the case of non-cash property or
securities) for, the payment or prepayment of the Senior Obligations.
(d) The Documentation Agent on behalf of the Lenders
is hereby authorized to demand specific performance of this Subordination
Agreement, whether or not the Borrower shall have complied with any or all of
the provisions hereof applicable to the Borrower, at any time when the Creditor
shall have failed to comply with any of the provisions of this Subordination
Agreement applicable to it.
9. It is the intent of the Creditor to create by this
Subordination Agreement a security interest in favor of the Documentation Agent
for the benefit of the Lenders in the Claims and in the Creditor's other rights
to receive money or other property from the Borrower, whether such rights shall
constitute accounts, contract rights, chattel paper, instruments, general
intangibles or otherwise. The Creditor hereby grants to the Documentation Agent
for the benefit of the Lenders a security interest in the Claims in order to
secure the payment and performance of the Creditor' obligations pursuant to this
Subordination Agreement.
10. The Creditor authorizes the Documentation Agent and the
Lenders (whether or not after revocation of this Subordination Agreement),
without notice or demand (except as shall be required by applicable statute and
cannot be waived), and without affecting or impairing the Creditor's obligations
hereunder, from time to time to (a) renew, compromise, extend, increase,
accelerate or otherwise change the time for payment of, or otherwise change the
terms of the Senior Obligations or any part thereof, including without
limitation to increase or decrease the rate of interest thereon; (b) take and
1a-222232
69
<PAGE>
hold security for the payment of the Senior Obligations and exchange, enforce,
waive and release any such security; (c) apply such security and direct the
order or manner of sale thereof as the Documentation Agent, the Administrative
Agent and the Lenders in their sole discretion may determine; and (d) release
and substitute any one or more endorsers, warrantors, the Borrower or other
obligors.
11. This Subordination Agreement shall extend to and be
binding upon the successors and assigns of each of the parties hereto.
12. This Subordination Agreement may be executed in any
number of counterparts all of which taken together shall constitute one
agreement and any party hereto may execute this Subordination Agreement by
signing any such counterpart.
13. This Subordination Agreement shall be construed in
accordance with and governed by the substantive laws of the State of California.
THE FIRST NATIONAL BANK OF CHICAGO,
as Documentation Agent
By: ___________________________
Name:__________________________
Title:____________________________
SOS STAFFING SERVICES, INC., a Utah
corporation
By: _______________________________
Name:______________________________
Title:_______________________________
------------------------------------
By: ________________________________
Name: ______________________________
Title: _______________________________
1a-222232
70
<PAGE>
SCHEDULE "1"
SUBSIDIARIES AND OTHER INVESTMENTS
(See Sections 5.8 and 6.14)
<TABLE>
<CAPTION>
Investment Amount of Percent Jurisdiction of
In Investment Ownership Organization
-- ---------- --------- ------------
<S> <C> <C>
Bedford Consultants, Inc. 100% California
Computer Professional Resources, Inc. 100% Kansas
SOS Information Technology Company 100% Utah
ServCom Staff Management, Inc. 100% Utah
SOS Collection Services, Inc. 100% Arizona
Wolfe & Associates, Inc. 100% New Mexico
</TABLE>
All of the above Subsidiaries are directly owned by the Borrower.
1a-222232
71
<PAGE>
SCHEDULE "2"
INDEBTEDNESS AND LIENS
(See Sections 5.14, 6.11 and 6.15)
Maturity
Indebtedness Indebtedness Property Interest and Amount
Incurred By Owed To Encumbered (If Any) Rate of Indebtedness
- ----------- ------- ------------------- ---- ---------------
[to be provided by the Borrower]
1a-222232
72
<PAGE>
SCHEDULE "3"
LITIGATION
(See Section 5.7)
[to be provided by the Borrower]
1a-222232
73
<PAGE>
SCHEDULE "4"
INITIAL COMMITMENT SCHEDULE
LENDER COMMITMENT PERCENTAGE
The First National Bank of Chicago $25,000,000 62.5000%
First Security Bank, N.A. $15,000,000 37.5000%
1a-222232
74
<PAGE>
la-222232
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I - DEFINITIONS...........................................................................................1
ARTICLE II - THE CREDITS..........................................................................................12
2.1. Commitment...........................................................................................12
2.2. Required Payments....................................................................................12
2.3. Ratable Loans........................................................................................12
2.4. Types of Advances....................................................................................12
2.5. Commitment Fee; Reductions in Aggregate Commitment...................................................12
2.6. Minimum Amount of Each Advance.......................................................................12
2.7. Optional Principal Payments..........................................................................13
2.8. Method of Selecting Types and Interest Periods for New Advances......................................13
2.9. Conversion and Continuation of Outstanding Advances..................................................13
2.10. Changes in Interest Rate, etc........................................................................14
2.11. Rates Applicable After Default.......................................................................14
2.12. Method of Payment....................................................................................14
2.13. Notes; Telephonic Notices............................................................................14
2.14. Interest Payment Dates; Interest and Fee Basis.......................................................15
2.15. Notification of Advances, Interest Rates, Prepayments and Commitment Reductions......................15
2.16. Lending Installations................................................................................15
2.17. Non-Receipt of Funds by the Administrative Agent.....................................................15
2.18. Mandatory Prepayment in the Event of a Change in Control.............................................16
2.19. Issuance of Letters of Credit........................................................................16
2.20. Purchase of Participation Interests..................................................................16
2.21. Repayment of L/C Drawings............................................................................17
2.22. Absolute Obligation to Repay.........................................................................17
2.23. Uniform Customs and Practice.........................................................................17
2.24. Relationship to Letter of Credit Application.........................................................18
2.25. Letter of Credit Fee.................................................................................18
2.26. Guaranties and Subordination Agreements..............................................................18
ARTICLE III - CHANGE IN CIRCUMSTANCES..............................................................................18
3.1. Yield Protection.....................................................................................18
3.2. Changes in Capital Adequacy Regulations..............................................................19
3.3. Availability of Types of Advances....................................................................19
3.4. Funding Indemnification..............................................................................19
3.5. Lender Statements; Survival of Indemnity.............................................................19
ARTICLE IV - CONDITIONS PRECEDENT.................................................................................20
4.1. Initial Advance......................................................................................20
4.2. Each Advance.........................................................................................21
4.3. Withholding Tax Exemption............................................................................21
1a-222232
i
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE V - REPRESENTATIONS AND WARRANTIES.......................................................................22
5.1. Corporate Existence and Standing.....................................................................22
5.2. Authorization and Validity...........................................................................22
5.3. No Conflict; Government Consent......................................................................22
5.4. Financial Statements.................................................................................23
5.5. Material Adverse Change..............................................................................23
5.6. Taxes................................................................................................23
5.7. Litigation and Contingent Obligations................................................................23
5.8. Subsidiaries.........................................................................................23
5.9. ERISA................................................................................................23
5.l0. Accuracy of Information..............................................................................23
5.11. Regulation U.........................................................................................24
5.12. Material Agreements..................................................................................24
5.13. Compliance With Laws.................................................................................24
5.14. Ownership of Properties..............................................................................24
5.15. Plan Assets; Prohibited Transactions.................................................................24
5.16. Environmental Matters................................................................................24
5.17. Investment Company Act...............................................................................24
5.18. Public Utility Holding Company Act...................................................................25
5.19. Year 2000 Program....................................................................................25
ARTICLE VI - COVENANTS............................................................................................25
6.1. Financial Reporting..................................................................................25
6.2. Use of Proceeds......................................................................................26
6.3. Notice of Default....................................................................................26
6.4. Conduct of Business..................................................................................26
6.5. Taxes................................................................................................27
6.6. Insurance............................................................................................27
6.7. Compliance with Laws.................................................................................27
6.8. Maintenance of Properties............................................................................27
6.9. Inspection...........................................................................................27
6.10. Dividends............................................................................................27
6.11. Indebtedness.........................................................................................27
6.12. Merger...............................................................................................28
6.13. Sale of Assets.......................................................................................28
6.14. Investments and Acquisitions.........................................................................28
6.15. Liens................................................................................................29
6.16. Total Indebtedness / Total Capital Ratio.............................................................29
6.17. Affiliates...........................................................................................30
6.18. Net Worth............................................................................................30
6.19. Total Indebtedness / Adjusted EBITDA Ratio...........................................................30
6.20. Interest Coverage Ratio..............................................................................30
6.21. Year 2000 Program....................................................................................30
</TABLE>
1a-222232
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE VII - DEFAULTS.............................................................................................30
ARTICLE VIII - ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES.......................................................32
8.1. Acceleration.........................................................................................32
8.2. Amendments...........................................................................................33
8.3. Preservation of Rights...............................................................................33
ARTICLE IX - GENERAL PROVISIONS...................................................................................34
9.1. Survival of Representations..........................................................................34
9.2. Governmental Regulation..............................................................................34
9.3. Taxes................................................................................................34
9.4. Headings.............................................................................................34
9.5. Entire Agreement.....................................................................................34
9.6. Several Obligations; Benefits of this Agreement......................................................34
9.7. Expenses; Indemnification............................................................................34
9.8. Numbers of Documents.................................................................................35
9.9. Accounting...........................................................................................35
9.10. Severability of Provisions...........................................................................35
9.11. Nonliability of Lenders..............................................................................35
9.12. Confidentiality......................................................................................35
9.13. Nonreliance..........................................................................................36
ARTICLE X - THE ADMINISTRATIVE AGENT.............................................................................36
10.1. Appointment; Nature of Relationship..................................................................36
10.2. Powers...............................................................................................36
10.3. General Immunity.....................................................................................36
10.4. No Responsibility for Loans, Recitals, etc...........................................................37
10.5. Action on Instructions of Lenders....................................................................37
10.6. Employment of Agents and Counsel.....................................................................37
10.7. Reliance on Documents; Counsel.......................................................................37
10.8. Reimbursement and Indemnification....................................................................37
10.9. Notice of Default....................................................................................38
10.10. Rights as a Lender...................................................................................38
10.l1. Lender Credit Decision...............................................................................38
10.12. Successor Administrative Agent and Documentation Agent...............................................38
ARTICLE XI - SETOFF; RATABLE PAYMENTS.............................................................................39
11.1. Setoff...............................................................................................39
11.2. Ratable Payments.....................................................................................39
ARTICLE XII - BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS....................................................40
12.1. Successors and Assigns...............................................................................40
12.2. Participations.......................................................................................40
12.2.1 Permitted Participants; Effect...............................................................40
12.2.2. Voting Rights...............................................................................40
12.2.3. Benefit of Setoff...........................................................................41
12.3. Assignments..........................................................................................41
12.3.1. Permitted Assignments.......................................................................41
12.3.2. Effect; Effective Date......................................................................41
</TABLE>
1a-222232
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
12.4. Dissemination of Information.........................................................................41
12.5. Tax Treatment........................................................................................42
ARTICLE XIII - NOTICES..............................................................................................42
13.1. Notices..............................................................................................42
13.2. Change of Address....................................................................................42
ARTICLE XIV - COUNTERPARTS.........................................................................................42
ARTICLE XV - CHOICE OF LAW, CONSENT TO JURISDICTION, WAIVER OF JURY TRIAL.........................................43
15.1. CHOICE OF LAW........................................................................................43
15.2. CONSENT TO JURISDICTION..............................................................................43
15.3. WAIVER OF JURY TRIAL.................................................................................43
EXHIBIT "A"- NOTE......................................................................................................45
EXHIBIT "B"- FORM OF OPINION...........................................................................................47
EXHIBIT "C"- COMPLIANCE CERTIFICATE....................................................................................49
EXHIBIT "D"- ASSIGNMENT AGREEMENT......................................................................................54
EXHIBIT "E"- LOAN/CREDIT RELATED MONEY TRANSFER INSTRUCTION............................................................62
EXHIBIT "F"- GUARANTY..................................................................................................63
EXHIBIT "G"- SUBORDINATION AGREEMENT...................................................................................67
SCHEDULE "1"- SUBSIDIARIES AND OTHER INVESTMENTS
SCHEDULE "2"- INDEBTEDNESS AND LIENS
SCHEDULE "3"- LITIGATION
SCHEDULE "4" -INITIAL COMMITMENT SCHEDULE
1a-222232
1a-222232
iv
</TABLE>
Corporate Profile
- -----------------
Founded in 1973, SOS Staffing Services, Inc. offers a broad range of commercial
staffing services, as well as information technology (IT) staffing, outsourcing,
and consulting. In the three and one-half years since SOS' initial public
offering, the company has more than tripled in size and scope. In July 1995, the
company had 42 offices in five states; as of year-end 1998, SOS operated 149
offices located throughout the Western United States.
SOS is dedicated to the principles of ISO 9000, an internationally recognized
standard for quality products and services. Each SOS office is committed to
providing a quality system of support to SOS customers.
Contents
- --------
Financial Highlights...........................................................1
Letter to Shareholders.........................................................2
Acquisition Update.............................................................4
SOS Commercial Division........................................................4
Inteliant......................................................................5
Board of Directors and Officers................................................7
Management's Discussion and Analysis
of Financial Condition and Results of Operations........................9
Consolidated Financial Statements and Notes...................................17
Report of Independent Public Accountants......................................35
Statements contained in this annual Report that are not purely historical are
"forward-looking" statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. The Company assumes no obligation to update
any such forward-looking statements. Readers are cautioned that all
forward-looking statements involve risks, uncertainties and other factors that
could cause the Company's actual results to differ materially from those
anticipated in such statements, including but not li NASDAQ/NMS: SOSS
<PAGE>
Financial Highlights
(in thousands, except per share data)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Fiscal Year (52/53 Weeks) Ended
1998 1997 1996 1995 (1) 1994 (1)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Service revenues $330,327 $209,251 $136,163 $ 87,533 $ 63,740
Gross profit 77,196 46,711 27,574 18,180 12,418
Operating income 16,777 12,350 6,707 4,321 2,372
Net income(1) 9,858 7,526 4,030 2,940 2,427
Earnings per share
Basic 0.78 0.78 0.59 0.54 0.44
Diluted 0.77 0.77 0.59 0.43 0.35
Weighted average common shares
Basic 12,675 9,654 6,780 4,985 4,500
Diluted(2) 12,810 9,780 6,838 6,229 5,731
Balance Sheet Data:
Working capital 26,989 42,791 17,012 9,645 5,057
Total assets 182,909 118,290 47,293 19,327 11,597
Total debt 39,925 -- -- 1,450 2,780
Shareholders' equity 114,606 104,336 36,834 14,668 7,098
</TABLE>
(1) The Company completed its initial public offering (IPO) in July 1995
and in connection therewith terminated its S Corporation election. Net
income for fiscal 1995 and 1994 has been adjusted to reflect a pro forma
provision for income taxes. In addition, prior to the IPO, the Company
compensated Richard D. Reinhold, its former CEO, at levels sufficient to
pay income taxes associated with its S Corporation status. For fiscal 1995,
the Company entered into an employment contract with Mr. Reinhold that
provided for annual compensation of $195,000. Net income for fiscal 1994
has been adjusted to reflect CEO compensation in such amount, resulting in
an increase to net income of approximately $787,000.
(2) Prior to the completion of its IPO, the Company distributed
approximately $8.0 million of its accounts receivable to its S Corporation
shareholders. The weighted average common shares outstanding for diluted
earnings per share for 1995 and 1994 reflects the issuance of 1,230,769
shares at an offering price of $6.50 per share, as if the distribution had
occurred at the beginning of 1994
<PAGE>
Dear Shareholder,
As we prepare to enter a new millenium, SOS is entering its own new era. Since
becoming a public company in 1995, the company has grown internally, as well as
through acquisitions, increasing its market presence geographically and its
service offerings. Now having achieved a solid base, with an integrated business
mix, SOS is prepared to enter a new period of profitable growth driven by the
talents we have gathered, the relationships we have built, and lessons learned
along the way.
This past year, SOS celebrated its 25th anniversary and moved to make changes to
prepare the company to excel in a new, more highly competitive business
environment. The company experienced double-digit revenue and income gains
during 1998.
Then And Now
Since SOS' initial public offering in 1995, the company has more than tripled in
size and scope, now providing services from 149 company-owned branches. While we
can certainly be proud of this achievement, SOS has also come to an important
crossroads-a point in the company's development necessitating definition of its
position in the marketplace, plans for growth, and developing our vision for the
company's future.
In the months since my appointment as chief executive on October 29, 1998,
management has reassessed all of the company's business segments. As a result,
organizational changes were made in some operations. These changes, while having
resulted in lower earnings in the short term, have set the stage for the company
to move forward to the next level of growth.
As part ofthe new management team, Mike Jones, who joined SOS in 1997 with the
company's acquisition of Century Group (Kansas City), has assumed the duties of
president of the commercial division and executive vice president of the
company. Mike founded the Century Group, a leading Kansas City staffing company
and executive search enterprise.
In 1998, SOS consolidated the operations of its 16 information technology
acquisitions under the name Inteliant Corporation. The launch of the new
subsidiary, along with the integration and development of new office systems,
accounted for additional expenses incurred throughout the year, which exerted
pressure on 1998 earnings. Our system-wide evaluation identified opportunities
for operating efficiencies and improvements, including the relocation of its
headquarters to Salt Lake City. This has resulted in certain personnel changes
as well as organizational realignment, most of the costs of which were expensed
in the fourth quarter. We are confident that Inteliant Corporation will play a
vital role in the company's success.
John Schaffer has been recently named president of Inteliant Corporation and has
been appointed senior vice president of SOS Staffing Services, Inc. John,
previously Inteliant's vice president, systems integration and outsourcing,
joined SOS in 1997 with the company's acquistion of JesCo Technical Services,
Inc., a company he founded and operated profitably since 1992.
We are enthusiastic in welcoming Mike and John to the SOS management team, and
we look forward to working with them as we implement new strategic initiatives
in our commercial and information technology divisions to ensure SOS' success in
1999 and in the new millenium.
2
<PAGE>
Financial Performance
Service revenue for the 53 weeks ended January 3, 1999 was $330.3 million
compared to $209.3 million for the 52 weeks ended December 28, 1997, an increase
of 58 percent. Net income for the most recent fiscal year increased 31 percent
to $9.9 million compared to $7.5 million for the 52 weeks ended December 28,
1997. Notwithstanding a 31 percent increase in diluted weighted average shares
outstanding, diluted earnings per common share amounted to $0.77 for both
periods.
During the fourth quarter ended January 3, 1999, the company incurred
organizational realignment costs of $0.8 million, net of the tax effect, or
$0.07 per diluted share, resulting from personnel changes and costs associated
with realigning and launching the Inteliant identity for the company's
information technology business. In addition, diluted earnings per common share
in the year included $0.04 arising from income tax credits earned through
specific government-sponsored hiring incentives. No credits were earned in the
comparable period of the prior year.
A Solid Company . . . A Solid Future
SOS' commitment to employee and customer satisfaction continues to strengthen
the company's reputation as a high-quality provider of employment, staffing and
consulting solutions to customers and temporary associates alike.
Over the past 26 years, SOS has transformed itself from a small local business
to a well-respected, multiregional provider in the staffing industry. Change has
been, and continues to be, the major constant in a business built upon
flexibility and alertness to today's emerging opportunities, which are likely to
become tomorrow's industry trends.
With more than $300 million in revenue and nearly $17 million in operating
income, SOS is a solid company with a solid future.
I would like to thank our employees, associates and consultants, whose
dedication and hard work are helping us build a company with a bright future for
the benefit of all, including our shareholders.
At the dawn of a new era, we face the future with new and better practices,
professional and well-trained staff, and proactive leadership, primed for growth
and ready to excel in the new environment.
Sincerely,
/s/ JoAnn W. Wagner
JoAnn W. Wagner, Chairman, President
and Chief Executive Officer
3
<PAGE>
SOS began 26 years ago as a small, independent company. Since that time, SOS has
evolved into a multifaceted service organization.
As the needs of its customers expand to include new geographic regions and
employee skill sets, SOS remains alert to opportunities to enhance its position
as a full-service staffing company.
Acquisition Update
The company's 1998 acquisition activity resulted in a number of new commercial,
IT and specialty staffing organizations.
The business mix of SOS often reflects business trends. The January 1998
purchase of Texas-based Mortgage Staffing, which specializes in providing loan
servicing and loan production professionals to the Dallas and Fort Worth area
mortgage industry, expanded SOS' regional presence into the growing mortgage
servicing industry. This acquisition reflected the increased demand for quality
mortgage professionals that resulted from recent legislative changes that allow
Texas consumers to borrow on home equity.
Additional acquisitions in 1998 increased SOS' geographic presence throughout
the western United States. The acquisitions of Abacab, Aquas and Neosoft formed
the base of the company's international recruiting capability and strengthened
its growing specialties, such as Internet design and support, Java-based
programming, enterprise resource planning (ERP) and e-commerce solutions. While
the acquisition of Devon & Devon and Truex added considerable expertise in
accounting and high-end aministrative specialty staffing, the company further
increased its geographic presence on the West Coast with the addition of TOPS.
Having built a solid base, SOS is focused on internal growth and on building an
organization capable of growing aggressively over the long term.
SOS Commercial Staffing Division
In February 1999, Mike Jones, who joined SOS in 1997 with the company's
acquisition of Century Group (Kansas City), was named president of SOS
commercial staffing division, the company's largest business segment. The
commercial division provides staffing solutions to companies by providing
temporary clerical, industrial, light industrial, technical and professional
services.
Operating under several service-specific names, including SOS, as well as
AccountStaff (accounting and finance), Mortgage Staffing. (mortgage services),
SkillStaff (construction and manufacturing), and Patient Account Management
Services (medical administrative support), the commercial division serves a wide
variety of niche markets.
4
<PAGE>
While business activities among the various areas are often complementary and
synergistic, each enterprise within the division leverages its own recruiting
strengths and marketing expertise to most effectively service its target market.
Inteliant - Information Technology Subsidiary
Rapid evolution of information technologies has created a new area of emphasis
for SOS. In the information age, the ability to collect, assimilate and redeploy
information often determines a company's success in the marketplace. SOS'
information technology division accounted for 23 percent of the company's 1998
revenue.
In 1998 we launched our new integrated information technology brand,
"Inteliant." Inteliant is derived from intelligence, the capacity to acquire and
apply knowledge, and reliant, having or demonstrating reliance. Inteliant
Corporation brings together, under one brand, a strong, integrated organization.
SOS expects Inteliant to achieve greater economies of scale with the integration
of IT back-office operations. Service offerings include staffing, outsourcing
and consulting, which we deliver with integrity, commitment and professionalism.
John E. Schaffer, who joined SOS in 1997 with the company's acquisition of JesCo
Technical Services, Inc., a company he founded in 1992, was recently named
president of Inteliant Corporation. Previously, he was vice president, systems
integration and outsourcing for the division.
With 22 offices specializing in information technology, SOS offers businesses
the flexibility to navigate the ever-changing IT environment and to take
advantage of efficiencies that would be otherwise unachievable.
A market presence in both the commercial staffing and information technology
segments enables SOS to enhance its position as a full-service staffing
enterprise. With a synergistic business mix, SOS is focused on internal growth
and on building the team and critical mass necessary for organizational success
well into the millenium.
5
<PAGE>
<TABLE>
Commercial Staffing
<CAPTION>
<S> <C> <C> <C> <C>
Arizona Colorado (cont.) Kansas (cont.) Oregon Utah (cont.)
Kingman Frisco Topeka Portland West Jordan
Phoenix-6 Ft Collins Wyandotte West Valley
Prescott Grand Junction-3 Texas
Tempe Greeley Missouri Amarillo Washington
Tucson Longmont Independence Dallas Bellevue
Yuma Montrose Joplin Fort Worth Renton
Northglenn Lee's Summit Lubbock Spokane
California Pueblo Liberty Dallas
Carlsbad North Office San Antonio Wyoming
Escondido Hawaii Plaza Evanston
Mission Valley-3 Ala Moana Utah Jackson
Newport Beach Montana American Fork Rock Springs
Palo Alto Idaho Billings Bountiful
San Francisco-2 Boise Cedar City
San Jose Burley Nevada Layton
Sorento Mesa Idaho Falls Carson City Logan
Pocatello Elko Murray-2
Colorado Twin Falls Las Vegas-4 Ogden-3
Aurora Reno Orem-2
Carbondale Kansas Sparks Price
Colorado Springs-3 Coffeyville Provo
Cortez Independence New Mexico Richfield
Craig Kansas City Albuquerque Salt Lake City-7
Delta Lawrence Clovis Spanish Fork
Denver-7 Neodesha Farmington St George
Durango Olathe Roswell Valley Fair
Eagle/Vail Overland Park-4 Vernal
Inteliant
California Kansas Oregon
Cupertino Prairie Village Portland
Orange
Pleasanton Massachusetts Texas
San Diego-2 Quincy Dallas
San Francisco Hurst
Sunnyvale-2 New Mexico
Tustin Albuquerque-2 Utah
Venice Salt Lake City
North Dakota
Colorado Bismark Washington
Denver Bellevue
Kirkland
</TABLE>
<PAGE>
Board of Directors & Officers
JoAnn W. Wagner, chairman, president and chief executive officer, has served on
the board since 1995. In February 1998, Wagner was named chairman, and in
October 1998, she became chief executive officer. JoAnn has 30 years of staffing
industry experience and has added tremendous value toward the execution of the
company's strategy. Throughout her career, she has served in a variety of
executive management roles and on a number of boards of directors. JoAnn was
elected the president of the National Assoc
Richard D. Reinhold, chairman emeritus, founded SOS Staffing Services in 1973.
For 25 years, Dick served as chairman, retiring in 1998. Prior to his
two-and-a-half decades with SOS, Dick held management positions in a number of
national temporary staffing service firms, including Greyhound Temporary
Services, where he served as vice president. Dick served a term as the president
of NATSS and two terms as president of the Utah Association of Temporary
Services.
Stanley R. deWaal was elected a director in 1995. Stan is currently the
president and a director of DeWaal, Keeler & Co., a Utah-based professional
corporation of certified public accountants which Stan co-founded in 1975. He
has been a licensed certified public accountant since 1967 and currently serves
on the board of directors for Hansen Planetarium, a not-for-profit organization
in Salt Lake City.
Samuel C. Freitag, a director since 1997, is currently the senior managing
director for George K. Baum Merchant Banc, L.L.C. Sam has served George K. Baum
& Co. in various roles, including as vice chairman, director of investment
banking, vice president of corporate finance and a member of the company's
management committee, where he was responsible for overseeing all investment
activities.
Michael A. Jones, director, executive vice president and president of the
company's commercial division, joined SOS in 1997 with the acquisition of
Century Group (Kansas City), which he founded. A seasoned staffing services
professional, whose career spans over 20 years in the industry, Jones has
extensive experience in human resource management, outsourcing and recruitment.
R. Thayne Robson, a director since 1995, enjoys more than 20 years' tenure as a
professor in the economics department and management and research department of
the University of Utah. In addition to serving on the board of a number of
Utah-based companies. Thayne is currently the director of the Utah Bureau of
Economic and Business Research. He is actively involved with numerous civic and
community endeavors, including as a member of the Utah Governor's Economic
Coordinating Committee and the executive
Randolph K. Rolf has been a director since 1995. Randy is former chairman,
president and chief executive officer of Unitog Company (Kansas City), a
publicly traded company, which was recently acquired by Cintas Corporation
(Cincinnati, Ohio), also a public company. Randy served as Unitog's chairman
from 1991 until the March 1999 acquisition.
Richard J. Tripp has been with SOS since 1973. Richard is a director, as well as
senior vice president. In addition to his roles as a director and executive
officer, he has honed his knowledge of the staffing industry by serving in
positions company-wide, including as an office and area manager. Richard's
background includes serving two terms as president of the Utah Association of
Temporary Services, a position he held from 1987 to 1989.
<PAGE>
Board of Directors and Officer, continued
W. B. Collings, vice president, treasurer and assistant secretary, joined SOS in
1993 as controller. Prior to joining the company, he had his own independent
accounting practice. From 1978 to 1991, Collings was chief financial officer of
Information Now, Inc., a Utah corporation engaged in developing, installing and
supporting computer software.
Gary B. Crook, executive vice president, and chief financial officer, joined SOS
Staffing Services in 1995. Gary's career spans more than two decades, during
which he has served in a number of managerial and advisory roles. Such roles
have included tenure as vice president and controller of Food-4-Less
Supermarkets, Inc.; vice president - administration and controller of American
Stores' subsidiary Alpha Beta Company; and consultant and acting CFO to Al
Azizia - Panda United, Inc., a Saudi Arabian-based grocery retailing and
distribution company.
Dennis N. Emery, vice president and controller, who was previously controller of
Mountaineer Gas Company in Charleston, West Virginia, joined the company in
1998. Prior to his association with Mountaineer Gas, Emery was controller of
Arthur Andersen & Co.'s Washington, D.C. office.
John K. Morrison, who was appointed vice president in March 1999, has been
general counsel and secretary of the company since 1995. Prior to joining SOS,
Morrison was employed as an attorney with the Anti-Discrimination Division of
the Utah Industrial Commission.
From 1991 to 1993, he was engaged in the private practice of law in Salt Lake
City, Utah.
John E. Schaffer, senior vice president and president of Inteliant Corporation,
the company's information technology subsidiary, has over ten years' experience
in information technology management and consulting. He joined SOS in 1997, with
the company's acquisition of JesCo Technical Services, Inc. Prior to his
appointment as its president, Schaffer was Inteliant's vice president, systems
integration and outsourcing.
In Memoriam
Annette Strauss joined the SOS board of directors during 1997. Former Mayor of
Dallas, Texas, Annette served as a director, officer or trustee with a number of
business, governmental, educational and philanthropic organizations. SOS is
fortunate to have had the benefit of Annette's counsel, and her presence on the
board will be missed. We extend our heartfelt sympathy to Annette's family and
friends.
8
<PAGE>
Management's Discussion and Analysis
of Finanicial Condition and Results of Operations
9
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion should be read in conjunction with the consolidated
financial statements of SOS Staffing Services, Inc. (the "Company") and notes
thereto appearing elsewhere in this report. The Company's fiscal year consists
of a 52 or 53-week period ending on the Sunday closest to December 31.
General: The Company provides a full range of staffing and information
technology ( "IT") services through a network of offices located in 17 states.
Generally, the Company has entered key metropolitan areas by initially acquiring
or opening a central or "hub" office, and subsequently developing additional
offices in smaller surrounding markets. As offices reach certain thresholds, the
Company often divides them into one or more additional offices resulting in
greater efficiency, profitability and market penetration.
Since the completion of the Company's initial public offering (the "IPO"), the
Company has acquired 46 staffing and consulting companies, representing 73
offices. The Company's network of offices has increased from 42, at the time of
the IPO, to 149, as of January 3, 1999. The purchase prices of acquisitions have
ranged from approximately $15,000 to $15,000,000, plus contingent earnouts;
while capital costs of new office openings, excluding working capital
requirements, have typically ranged from $10,000 to $50,000. To date, most of
the Company's internally developed offices have achieved profitability within
six to 12 months, while offices resulting from the division of existing larger
offices are usually profitable from inception.
Contingent earnout agreements are often negotiated as a component of the
purchase price of acquisitions. An earnout arrangement may be necessary when the
Company believes future consideration may more accurately reflect the
appropriate value for the acquired business and enhance the likelihood of
successfully integrating the acquired company into SOS, or to align the
interests of the Company and the sellers.
Business Segments: The Company's operations are grouped into two identifiable
operating segments: commercial staffing and information technology. The
commercial staffing segment provides staffing to companies by furnishing
temporary clerical, industrial, light-industrial, engineering, and professional
services. The IT segment provides solutions for staffing, outsourcing, and
consulting in IT-related fields.
Results of Operations: The following table sets forth, for the periods
indicated, the percentage relationship to service revenues of selected income
statement items for the Company on a consolidated basis and by operating
segment:
Consolidated Fiscal Year (52/53 Weeks) Ended
-------------------------------
1998 1997 1996
-------------------------------
Service revenues 100.0% 100.0% 100.0%
Direct cost of services 76.6 77.7 79.7
-------------------------------
Gross profit 23.4 22.3 20.3
-------------------------------
Operating expenses:
Selling, general and administrative expenses 16.7 15.7 15.1
Organization realignment 0.4 -- --
Intangibles amortization 1.2 0.7 0.3
-------------------------------
Total operating expenses 18.3 16.4 15.4
-------------------------------
Operating income 5.1% 5.9% 4.9%
-------------------------------
10
<PAGE>
Commercial Staffing Segment Fiscal Year (52/53 Weeks) Ended
-------------------------------
1998 1997 1996
-------------------------------
Service revenues 100.0% 100.0% 100.0%
Direct cost of services 78.9 79.3 79.8
-------------------------------
Gross profit 21.1 20.7 20.2
Operating expenses:
Selling, general and administrative expenses 15.6 13.9 13.6
Organization realignment 0.0 -- --
Intangibles amortization 0.7 0.4 0.2
-------------------------------
Total operating expenses 16.3 14.3 13.8
-------------------------------
Operating income 4.8% 6.4% 6.4%
-------------------------------
IT Segment
Service revenues 100.0% 100.0%
Direct cost of services 69.1 68.5
-------------------------------
Gross profit 30.9 31.5
-------------------------------
Operating expenses:
Selling, general and administrative expenses 16.9 18.9
Organization realignment 1.0 --
Intangibles amortization 2.7 2.5
-------------------------------
Total operating expenses 20.6 21.4
-------------------------------
Operating income 10.3% 10.1%
-------------------------------
Fiscal 1998 Compared to Fiscal 1997
Consolidated
The commercial staffing segment contributed approximately 76.6% of total service
revenues for fiscal 1998, compared to 84.9% of total service revenues for fiscal
1997. The IT segment contributed 23.4% of total service revenues in fiscal 1998
compared to 15.1% in fiscal 1997. This reflects management's emphasis on
acquisitions of IT related enterprises.
Service Revenues: Service revenues for fiscal 1998 were $330.3 million, an
increase of $121.0 million, or 57.8%, compared to sales of $209.3 million in
fiscal 1997. Of the $121.0 million increase, approximately $99.2 million was
attributable to newly acquired businesses, $18.6 million was from internal
growth (including new offices offset by office closures), and an additional $3.2
million was realized due to fiscal 1998 containing 53 weeks compared to 52 weeks
for fiscal 1997.
Gross Profit: Gross profit for fiscal 1998 was $77.2 million compared to $46.7
million for fiscal 1997, an increase of $30.5 million or 65.3%. Gross profit
margin for fiscal 1998 was 23.4% compared to 22.3% in fiscal 1997, reflecting
the increased mix of higher-margin IT business.
Operating Expenses: Total operating expenses, as a percentage of revenues,
increased from 16.4% in fiscal 1997 to 18.3% for fiscal 1998. The increase was
due to organization realignment costs of approximately $1.4 million, an increase
in intangibles amortization, and acquisitions of companies that operate in
regions with higher staffing and facility costs.
Of the $1.4 million in organization realignment costs, $0.5 million was incurred
in establishing and launching the Company's Inteliant tradename, and another
$0.3 million was incurred by streamlining management in the IT segment. In the
commercial staffing segment, $0.1 million was incurred in realignment costs, and
$0.5 million was incurred as a result of corporate management changes.
11
<PAGE>
Operating Income: Operating income increased approximately $4.4 million, or
35.5%, from $12.4 million in fiscal 1997 to $16.8 million in fiscal 1998.
Operating margin, as a percentage of revenues, was 5.1% in fiscal 1998, compared
to 5.9% in fiscal 1997. The decrease in operating margin was due primarily to
the increase in operating expenses.
Income Taxes: The Company's effective combined federal and state income tax rate
was 37.0% in fiscal 1998 compared to 40.4% in fiscal 1997. The decrease in the
combined tax rate was due to income tax credits earned through specific
government-sponsored hiring incentives. These programs are expected to continue
to decrease the Company's future effective tax rate to the extent these programs
or similar programs remain in effect. The reduction offered by tax credits was
partially offset by an increase in non-deductible amortization relating to
certain acquisitions and increased operations in states which assess higher
state income tax rates.
Commercial Staffing Segment
Service Revenues: Substantially all of the Company's service revenues are based
on the time worked by its temporary staffing employees on customer assignments
and from permanent placement of personnel with customers. Service revenues are
recognized as income at the time service is provided. Service revenues for the
commercial staffing segment increased by $75.3 million, or 42.4%, to $252.9
million for fiscal 1998, compared to $177.6 million for fiscal 1997. Of the
$75.3 million increase, approximately $3.0 million was attributable to the
additional week in the fiscal year; $1.4 million was contributed by new offices;
$58.2 million was attributable to offices acquired during fiscal 1997 and 1998;
and $12.7 million was attributable to increased revenues from comparable
offices.
Gross Profit: The Company defines gross profit as service revenues less the cost
of providing services, which includes wages, employer payroll taxes (FICA,
unemployment and other general payroll costs) and workers' compensation costs
related to temporary staffing employees. Gross profit margin for fiscal 1998 was
21.1% compared to 20.7% in fiscal 1997, reflecting an increase in higher-margin
specialty business contributed by some of the acquisitions.
Operating Expenses: Operating expenses include, among other things, compensation
of staff, rent, recruitment and retention of temporary staffing employees, costs
associated with opening new offices, depreciation, amortization and advertising.
Operating expenses, excluding organization realignment costs and intangibles
amortization, as a percentage of service revenues for fiscal 1998 were 15.6%,
compared to 13.9% for fiscal 1997. The increase was attributable to acquisitions
of companies with higher operating cost structures.
Intangibles amortization increased from $0.7 million to $1.8 million, or 157.1%,
from fiscal 1997 to 1998. Intangibles amortization as a percentage of service
revenues was 0.4% and 0.7% for fiscal 1997 and 1998, respectively. The increase
was due to increased acquisitions and earnouts for fiscal 1997 and 1998.
During fiscal 1998, in an effort to streamline the reporting process from the
different regions, a level of management was eliminated. Costs of approximately
$0.1 million were incurred in this organization realignment. Management believes
that the new organization will allow the segment to respond to issues and events
with greater efficiency.
Operating expenses in total as a percentage of service revenues were 16.3% and
14.3% for fiscal 1998 and 1997, respectively.
Operating Income: Operating income for fiscal 1998 was $12.2 million, an
increase of $0.8 million, or 7.0%, from $11.4 million in fiscal 1997. Operating
margin for fiscal 1998 was 4.8%, compared to 6.4% in fiscal 1997. The decrease
in operating margin was due largely to an increase in selling, general and
administrative expenses and intangibles amortization.
12
<PAGE>
IT Segment
Service Revenues: IT segment revenues are generally based on services provided
on customer assignments by temporary staffing and consulting employees or when
staff is placed on a permanent basis with the customer. Service revenues
increased $45.7 million, or 144.2% from $31.7 million in fiscal 1997 to $77.4
million in fiscal 1998. The change was primarily attributable to acquisitions
that accounted for approximately $41.0 million. Internal growth (the development
of new offices and contributions from comparable offices) accounted for
approximately $4.5 million; and an additional $0.2 million was recognized as a
result of the fiscal year containing 53 weeks compared to 52 weeks in the prior
fiscal year. The increase in service revenues for internal growth is consistent
with increases in billable hours.
Gross Profit: The Company defines gross profit as service revenues less the cost
of providing services. Such costs include wages, employer payroll taxes (FICA,
unemployment and other general payroll costs), and workers' compensation costs
related to temporary staffing and consulting employees; costs related to outside
consultants and independent contractors utilized by the Company; and other
direct costs associated with any consulting engagement. Gross profit for fiscal
1998 was $23.9 million, an increase of $13.9 million, or 139%, compared to $10.0
million in fiscal 1997. Gross profit margin for fiscal 1998 was 30.9%, compared
to 31.5% in fiscal 1997.
Operating Expenses: Operating expenses, excluding intangibles amortization and
organization realignment, as a percentage of service revenues for fiscal 1998
and 1997 were 16.9% and 18.9%, respectively.
Intangibles amortization increased from $0.8 million to $2.1 million for fiscal
1998. Intangibles amortization as a percentage of revenues was 2.5% and 2.7% for
fiscal 1997 and 1998, respectively. The increase was due to increased
acquisitions and earnouts for fiscal 1998.
Organization realignment costs of $0.8 million, or 1.0% of revenues, resulted
from personnel changes and costs associated with realigning and launching the
Inteliant identity for the IT segment.
Total operating expenses as a percentage of revenues were 20.6% and 21.4% for
fiscal 1998 and 1997, respectively.
Operating Income: Operating income for fiscal 1998 was $7.9 million, an increase
of $4.7 million, or 146.9%, from $3.2 million in fiscal 1997. Operating margin
for fiscal 1998 was 10.3%, compared to 10.1% in 1997.
Fiscal 1997 Compared to Fiscal 1996
Consolidated
Service Revenues: Service revenues for fiscal 1997 were $209.3 million, an
increase of $73.1 million, or 54%, from $136.2 million in fiscal 1996. Of the
$73.1 million increase, $45.7 million was attributable to acquisitions, $19.0
million was attributable to comparable offices and $8.4 million was attributable
to new offices.
Gross Profit: Gross profit for fiscal 1997 was $46.7 million, an increase of
$19.1 million, or 69%, compared to $27.6 million in 1996. Gross profit margin
for fiscal 1997 was 22.3%, compared to 20.3% in fiscal 1996, reflecting the
increased mix of higher-margin IT business.
Operating Expenses: Operating expenses amounted to $34.4 million, or 16.4% of
service revenues, in fiscal 1997, compared to $20.9 million, or 15.4% of service
revenues, in fiscal 1996. The increase in operating expenses, as a percentage of
service revenues, was a result of an increase in amortization of intangible
assets due to acquisitions by the Company and the higher mix of IT business
where selling, general and administrative expenses are higher.
13
<PAGE>
Operating Income: Operating income for fiscal 1997 was $12.4 million, an
increase of $5.7 million, or 85%, from $6.7 million in fiscal 1996. Operating
margin for fiscal 1997 and 1996 was 5.9% and 4.9%, respectively.
Income Taxes: The effective combined federal and state income tax rates for
fiscal 1997 and 1996 were 40.4% and 38.1%, respectively. The increase was due
primarily to an increased level of operations in states with higher marginal
income tax rates.
Commercial Staffing Segment
Service Revenues: Service revenues increased by $44.9 million, or 33.8%, to
$177.6 million for fiscal 1997, compared to $132.7 million for fiscal 1996. Of
the $44.9 million increase, new offices contributed approximately $8.2 million;
$18.0 million was attributable to offices acquired during 1997 and 1996; and
$18.7 million was attributable to increased revenues from comparable offices.
The increase in service revenues from comparable offices was also generally
consistent with increases in hours billed, customers served and temporary
staffing employees utilized.
Gross Profit: Gross profit for fiscal 1997 was $36.7 million, an increase of
$9.9 million, or 36.9%, compared to $26.8 million in fiscal 1996. Gross profit
margin for fiscal 1997 was 20.7% compared to 20.2% in fiscal 1996, reflecting an
increased mix of higher-margin business.
Operating Expenses: Operating expenses, excluding intangibles amortization, as a
percentage of service revenues for the fiscal 1997 and 1996 were 13.9% and
13.6%, respectively. The increase was due primarily to an increase in staffing
costs, related to increased payroll, and an increase in facility expense
attributable to acquisitions.
Intangibles amortization increased from $0.3 million to $0.7 million, or 133.3%,
from fiscal 1996 to 1997. Intangibles amortization as a percentage of revenues
was 0.2% and 0.4% for fiscal 1996 and 1997, respectively. The increase was due
to increased acquisitions during fiscal 1997.
Total operating costs, as a percentage of service revenues for fiscal 1997 and
1996, were 14.3% and 13.8%, respectively. Expenses have generally increased as
service revenues and the number of offices has increased.
Operating Income: Operating income for fiscal 1997 was $11.4 million, an
increase of $2.9 million, or 34.1%, from $8.5 million in fiscal 1996. Operating
margin for fiscal 1997 was 6.4%, compared to 6.4% in fiscal 1996.
IT Segment
Operations of the IT segment for fiscal 1996 were immaterial to the operations
of the Company, with service revenues of $3.4 million, or 2.5% of total
revenues. Changes for fiscal 1997 are a result of acquisitions by the Company to
strengthen its market share in this growing segment.
Liquidity and Capital Resources
For fiscal 1998 net cash provided by operating activities was $9.9 million,
compared to net cash used in operating activities of $0.9 million for fiscal
1997. The increase in operating activities cash flow was primarily a result of
higher net income, and increased depreciation and amortization.
The Company's investing activities during fiscal 1998 used $4.4 million to
purchase property and equipment, $41.1 million to purchase assets of acquired
businesses and $18.9 million to pay earnouts on acquisitions. See the Notes to
the Company's Consolidated Financial Statements for a summary description of the
material terms of the acquisitions completed during fiscal 1998.
14
<PAGE>
The Company's primary sources of capital from financing activities were from a
private placement of $35 million of senior unsecured debt, consisting of two
pieces. The first piece is a series of senior unsecured notes in the aggregate
amount of $30 million with a final ten-year maturity and an average maturity of
seven years at a 6.95% coupon rate. The second piece is a series of senior
unsecured notes in the aggregate amount of $5 million with a coupon rate of
6.72% due in a single payment in 2003. The Company used the proceeds from the
private debt placement to pay off the borrowings under the Company's revolving
credit facility.
The Company also has an unsecured revolving credit facility with certain banks
that provides for maximum borrowings of $40 million. The agreement, which
provides for both short-term and long-term borrowings, expires in July 2001.
Short-term borrowings bear interest at a bank's prime rate (7.75% at January 3,
1999) and long-term borrowings bear interest at LIBOR plus 1.25% (6.9% at
January 3, 1999). As of January 3, 1999, $30.2 million was available for
borrowings or additional letters of credit.
Management believes that the present credit facilities, together with cash
reserves and cash flow from operations, will be sufficient to fund the Company's
operations and capital expenditure requirements for at least the next 12 months.
However, if the Company were to expand its operations significantly, especially
through acquisitions, additional capital may be required. There can be no
assurance that the Company will be able to obtain additional capital at
acceptable rates.
Seasonality
The Company's business follows the seasonal trends of its customers' business.
Historically, the Company has experienced lower revenues in the first quarter
due to seasonal trends of its customers.
Impact of Inflation
The Company believes that over the past three years inflation has not had a
significant impact on the Company's results of operations.
Year - 2000 Compliance
Management believes that it is adequately addressing the year 2000 ("Y2K")
problem. In short, the Y2K problem is a result of information technology
equipment and systems being designed to recognize the year portion of a date as
two rather than four digits, which means that years coded "00" are recognized by
many systems as the year 1900, not the year 2000. As a result, certain hardware
and software products may not properly function or may fail beginning in year
2000.
As part of the Company's internal quality system based on the principles of ISO
9002, the Company has formed an internal task force to identify, address, and
remedy Y2K issues. The Company's information system for its primary commercial
staffing operations has been tested and is believed to be Y2K compliant.
Additionally, the Company is currently implementing new financial system
software that has been warranted by the developer to be Y2K compliant. The
Company is also in the process of assessing and testing the information systems
of Inteliant and other independent systems within the Company. The Company
anticipates assessment and testing will be completed by mid-1999.
The Company has identified suppliers of critical services and products and has
sent questionnaires to each such supplier concerning Y2K compliance. The Company
will continue to monitor the compliance of each such supplier through 1999 and
beyond. New vendors are also required to provide information concerning Y2K
compliance. The Company is following a similar process for Inteliant and other
independent operations within the Company.
15
<PAGE>
The Company has also sent questionnaires to each of its major customers
regarding the status of Y2K compliance. The Company will continue to monitor the
compliance of each such customer through 1999 and beyond. The Company has
amended its credit application required for each new customer requesting
disclosure of Y2K compliance. The Company is following a similar process for
Inteliant and other independent operations within the Company.
The Company is currently developing an assessment program for each of its branch
offices to assess imbedded chip technology for Y2K compliance. Many products or
systems contain imbedded computer chips that may or may not be Y2K compliant.
Examples of such items include elevators, alarm systems, HVAC units and
thermostats, and telephone and voicemail systems. The Company believes that its
assessment of imbedded chip technology will be complete by mid-1999.
Based on current information, the Company does not believe that its internal
systems will fail because of the Y2K problem or cause an interruption in the
delivery of services to its customers. In the event such systems fail, the
Company believes that it has adequate manual systems that would allow for
continued delivery of services to customers. Management does not foresee
significant liability to third parties if the Company's systems are not Y2K
compliant. However, the Company faces two major risks related to Y2K that could
have a material adverse affect on the business of the Company. The first major
Y2K risk is service disruption from third-party suppliers of critical services,
such as telephone, electrical and banking services. As part of its critical
suppliers' assessment, the Company is monitoring and seeking assurance of Y2K
compliance from such suppliers. The second major risk is that the operations of
the customers of the Company will be disrupted by the Y2K problem (either
internally or because of third-party service providers) which could result in a
decrease in or the cessation of the need for the Company's services.
The Company has not yet approved a formal contingency plan for Y2K issues. The
Company expects to have a formal contingency plan in place during fiscal 1999.
The Company estimates that approximately $150,000 will be incurred in verifying
its Y2K compliance. The majority of costs will be directed to independent
sources for testing of the procedures the Company has implemented. The costs
related to the Company's Y2K compliance program have not had, and are not
expected to have, a material impact on the Company's financial condition, the
results of operations or cash flows.
16
<PAGE>
Consolidated Financial Statements and Notes
17
<PAGE>
<TABLE>
SOS STAFFING SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
As of January 3, 1999 and December 28, 1997
ASSETS
(000's)
<CAPTION>
January 3, December 28,
1999 1997
CURRENT ASSETS --------------------------
<S> <C> <C>
Cash and cash equivalents $ 5,315 $ 20,463
Accounts receivable, less allowances of
$762 and $678, respectively 44,627 32,982
Current portion of workers' compensation deposit 462 476
Prepaid expenses and other 1,054 730
Deferred income tax asset 1,849 1,239
Income tax receivable 571 --
--------------------------
Total current assets 53,878 55,890
--------------------------
PROPERTY AND EQUIPMENT, at cost
Computer equipment 5,977 2,852
Office equipment 2,917 2,241
Leasehold improvements and other 1,553 1,286
--------------------------
10,447 6,379
Less accumulated depreciation and amortization (3,103) (2,353)
--------------------------
Total property and equipment, net 7,344 4,026
--------------------------
OTHER ASSETS
Workers' compensation deposit, less current portion 106 106
Intangible assets, less accumulated amortization
of $5,872 and $1,941, respectively 119,709 57,456
Deposits and other assets 1,872 812
--------------------------
Total other assets 121,687 58,374
--------------------------
Total assets $ 182,909 $ 118,290
--------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated balance sheets
18
<PAGE>
<TABLE>
SOS STAFFING SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
As of January 3, 1999 and December 28, 1997
LIABILITIES AND SHAREHOLDERS' EQUITY
(000's)
<CAPTION>
January 3, December 28,
1999 1997
-------------------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 3,350 $ 971
Accrued payroll costs 6,805 3,567
Current portion
of workers' compensation reserve 2,358 2,538
Accrued liabilities 2,163 663
Currrent portion of notes payable 313 --
Income taxes payable -- 947
Accrued acquisition costs and earnouts 11,900 4,413
-------------------------
Total current liabilities 26,889 13,099
-------------------------
LONG-TERM LIABILITIES
Notes payable, less current portion 39,612 --
Workers' compensation reserve,
less current portion 478 535
Deferred income tax liability 927 194
Deferred compensation liabilities 397 126
-------------------------
Total long-term liabilities 41,414 855
-------------------------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 5)
SHAREHOLDERS' EQUITY
Common stock $0.01 par value 20,000 shares
authorized; 12,689 and 12,653 shares
issued and outstanding, respectively 127 127
Additional paid-in capital 91,564 91,152
Retained earnings 22,915 13,057
-------------------------
Total shareholders' equity 114,606 104,336
-------------------------
Total liabilities and shareholders' equity $182,909 $118,290
-------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated balance sheets
19
<PAGE>
<TABLE>
SOS STAFFING SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the Fiscal Years Ended January 3, 1999,
December 28, 1997 and December 29, 1996
(000's, except per share data)
<CAPTION>
Fiscal Year (53/52 Weeks)
--------------------------------------------
1998 1997 1996
--------------------------------------------
<S> <C> <C> <C>
SERVICE REVENUES $ 330,327 $ 209,251 $ 136,163
DIRECT COST OF SERVICES 253,131 162,540 108,589
--------------------------------------------
Gross Profit 77,196 46,711 27,574
--------------------------------------------
OPERATING EXPENSES:
Selling, general and administrative 55,078 32,868 20,397
Organization realignment 1,395 -- --
Intangibles amortization 3,946 1,493 470
--------------------------------------------
Total operating expenses 60,419 34,361 20,867
--------------------------------------------
INCOME FROM OPERATIONS 16,777 12,350 6,707
--------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense (1,660) (301)
Interest income 229 498 91
Other, net 299 145 14
--------------------------------------------
Total, net (1,132) 275 (196)
--------------------------------------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 15,645 12,625 6,511
PROVISION FOR INCOME TAXES (5,787) (5,099) (2,481)
--------------------------------------------
NET INCOME $ 9,858 $ 7,526 $ 4,030
--------------------------------------------
NET INCOME PER COMMON SHARE:
Basic $ 0.78 $ 0.78 $ 0.59
Diluted 0.77 0.77 0.59
WEIGHTED AVERAGE COMMON SHARES:
Basic 12,675 9,654 6,780
Diluted 12,810 9,780 6,838
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements
20
<PAGE>
<TABLE>
SOS STAFFING SERVICES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(000's)
<CAPTION>
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings Total
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 6,700 $ 67 $ 13,099 $ 1,501 $ 14,667
Exercise of stock options 6 -- 39 -- 39
Sale of common stock, net 2,000 20 18,078 -- 18,098
Net income -- -- -- 4,030 4,030
----------------------------------------------------------
BALANCE, December 29, 1996 8,706 87 31,216 5,531 36,834
Exercise of stock options 17 1 143 -- 144
Sale of common stock, net 3,930 39 59,793 -- 59,832
Net income -- -- -- 7,526 7,526
----------------------------------------------------------
BALANCE, December 28, 1997 12,653 127 91,152 13,057 104,336
Exercise of stock options 36 -- 412 -- 412
Net income -- -- -- 9,858 9,858
----------------------------------------------------------
BALANCE, January 3, 1999 12,689 $ 127 $ 91,564 $ 22,915 $114,606
----------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements
21
<PAGE>
<TABLE>
SOS STAFFING SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Fiscal Years Ended January 3, 1999,
December 28, 1997 and December 29, 1996
Increase (Decrease) in Cash and Cash Equivalents
(000's)
<CAPTION>
Fiscal Year (53/52 Weeks)
------------------------------------
1998 1997 1996
------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,858 $ 7,526 $ 4,030
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 5,360 2,157 855
Deferred income taxes 123 (596) (825)
Loss on disposition of assets 50 27 63
Changes in operating assets and liabilities:
Accounts receivable, net (8,864) (12,449) (8,786)
Workers' compensation deposit 14 135 (6)
Prepaid expenses and other (228) (289) (128)
Amounts due from related parties -- (18) 55
Deposits and other assets (789) (312) (85)
Accounts payable 2,378 371 391
Accrued payroll costs 3,239 1,456 529
Workers' compensation reserve (238) 1,196 957
Accrued liabilities 484 (625) 219
Income taxes payable/receivable (1,518) 480 302
------------------------------------
Net cash provided by (used in)
operating activities 9,869 (941) (2,429)
------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions of businesses (41,080) (38,575) (10,162)
Purchases of property and equipment (4,431) (1,830) (684)
Principal payment of note related to acquisition -- -- (1,450)
Payments on acquisition earnouts (18,903) (3,955) (239)
Proceeds from sale of property and equipment 60 3 --
------------------------------------
Net cash used in investing activities (64,354) (44,357) (12,535)
------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements
22
<PAGE>
<TABLE>
SOS STAFFING SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Fiscal Years Ended January 3, 1999,
December 28, 1997 and December 29, 1996
Increase (Decrease) in Cash and Cash Equivalents
(000's)
<CAPTION>
Fiscal Year (53/52 Weeks)
--------------------------------------
1998 1997 1996
--------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net $ -- 59,832 $ 18,098
Proceeds from exercise of employee stock options 412 144 40
Proceeds from long-term borrowings 62,000 13,000 11,000
Payment on long-term borrowings (23,075) (13,000) (11,106)
--------------------------------------
Net cash provided by financing activities 39,337 59,976 18,032
--------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (15,148) 14,678 3,068
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 20,463 5,785 2,717
--------------------------------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 5,315 $ 20,463 $ 5,785
--------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,223 $ 226 $ 280
Income taxes 7,322 5,169 2,902
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
The following table sets forth information relating to the Company's
acquisitions of certain businesses (see Note 3):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fair value of assets acquired $45,247 $40,443 $14,980
Liabilities assumed 1,016 880 139
Notes payable issued in connection with acquisition 2,935 798 --
Accrued acquisition costs and earnouts 11,900 3,413 4,679
</TABLE>
During fiscal year 1997, amounts receivable from TSI, totaling approximately
$0.6 million, were offset against the acquisition note payable (see Note 11).
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements
23
<PAGE>
SOS STAFFING SERVICES, INC.
Notes to Consolidated Financial Statements
(1) Nature of Operations
SOS Staffing Services, Inc. and subsidiaries (collectively the "Company") is a
provider of temporary staffing and consulting services through offices located
in 17 states of the U.S. The Company provides a broad range of commercial
staffing and information technology ("IT") services. Commercial staffing
services include light industrial, clerical, industrial, technical and other
professional services. IT services consist of staffing, consulting and
outsourcing services such as system design, programming, network and systems
management and business consulting.
(2) Summary of Significant Accounting Policies
Fiscal Year - The Company's fiscal year ends on the Sunday closest to December
31, which results in a 52- or 53-week year. Fiscal year ended January 3, 1999
("fiscal 1998") contained 53 weeks. The fiscal years ended December 28, 1997 (
"fiscal 1997") and December 29, 1996 ("fiscal 1996") each contained 52 weeks.
Principles of Consolidation - The consolidated financial statements include the
accounts of SOS Staffing Services, Inc. and its wholly owned subsidiaries,
Computer Professional Resources, Inc., Devon & Devon Personnel Services, Inc.,
ServCom Staff Management, Inc., SOS Collection Services, Inc. (d.b.a. National
Collex ), and Inteliant Corporation. All significant intercompany transactions
have been eliminated in consolidation.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reported periods. Actual results could differ from those estimates.
Revenue Recognition - Revenues are recognized at the time services are provided.
Cash and Cash Equivalents - The Company considers highly liquid investments with
an original maturity of three months or less to be cash and cash equivalents.
Cash and cash equivalents consist of various money market accounts and are
recorded at cost, which approximates market value.
Property and Equipment - Property and equipment are stated at cost and
depreciated using the straight-line method over their estimated useful lives.
Leasehold improvements are amortized over the terms of the respective leases or
the estimated economic lives of the assets whichever is shorter. The
depreciation and amortization periods are as follows: computer equipment, 2 - 5
years; office equipment, 3 - 7 years; leasehold improvements and other, 5 - 17
years. Upon retirement or other disposition of property and equipment, the cost
and related accumulated depreciation and amortization are removed from the
accounts. The resulting gain or loss is reflected in income. Major renewals and
improvements are capitalized while minor expenditures for maintenance and
repairs are charged to expense as incurred.
Workers' Compensation - For fiscal 1998 and 1997, the Company maintained
workers' compensation insurance with CIGNA Property and Casualty ("CIGNA") for
claims in excess of a loss cap of $250,000 and $200,000 per incident,
respectively, except with respect to certain divisions which are covered by
state insurance funds in states where private insurance is not permitted. Under
the terms of the CIGNA agreement, the Company is required to fund into a deposit
account an amount for payment of claims. The fund is replenished monthly based
on actual payments made by CIGNA during the previous month.
The Company has established reserve amounts based upon information provided by
the insurance companies as to the status of claims plus development factors for
incurred but not yet reported claims and anticipated future changes in
underlying case reserves. Such reserve amounts are only estimates and there can
be no assurance that the Company's future workers' compensation obligations will
not exceed the amount of its reserves. However, management believes that the
difference between the amounts recorded for its estimated liability and the
costs of settling the actual claims will not be material to the results of
operations.
24
<PAGE>
Intangible Assets - Intangible assets consist of the following amounts as of
fiscal 1998 and 1997 (in 000's):
1998 1997
------------------------
Goodwill $ 121,529 $ 56,551
Non-compete agreements 2,996 2,013
Employee and customer lists 1,056 833
------------------------
Total 125,581 59,397
Less accumulated amortization (5,872) (1,941)
------------------------
$ 119,709 $ 57,456
------------------------
Goodwill is amortized using the straight-line method over 30 years. The
non-compete agreements and employee and customer lists are being amortized using
the straight-line method over three to six years.
Accounting for the Impairment of Long-Lived Assets -The Company accounts for
impairment of long-lived assets in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 121
requires that long-lived assets, including goodwill, be reviewed for impairment
whenever events or changes in circumstances indicate that the book value of the
asset may not be recoverable. The Company evaluates, at each balance sheet date,
whether events and circumstances have occurred that indicate possible
impairment. In accordance with SFAS No. 121, the Company uses an estimate of the
future undiscounted net cash flows of the related asset over the remaining life
in measuring whether the assets are recoverable.
Income Taxes - The Company recognizes deferred income tax assets or liabilities
for expected future tax consequences of events that have been recognized in the
financial statements or tax returns. Under this method, deferred income tax
assets or liabilities are determined based upon the difference between the
financial and income tax basis of assets and liabilities using enacted tax rates
expected to apply when differences are expected to be settled or realized.
Net Income Per Common Stock - Basic net income per common share ("Basic EPS")
excludes dilution and is computed by dividing net income by the weighted-average
number of common shares outstanding during the year. Diluted net income per
common share ("Diluted EPS") reflects the potential dilution that could occur if
stock options or other common stock equivalents were exercised or converted into
common stock. The computation of Diluted EPS does not assume exercise or
conversion of securities that would have an antidilutive effect on net income
per common share. Net income per common share amounts and share data have been
restated for all years presented to reflect Basic and Diluted EPS.
Following is a reconciliation of the numerator and denominator of Basic EPS to
the numerator and denominator of Diluted EPS for all years presented (in 000's
except per share amounts):
<TABLE>
<CAPTION>
Net Income Share Per-Share
(Numerator) (Denominator) Amount
-----------------------------------------
<S> <C> <C> <C>
Fiscal 1998
Basic EPS $ 9,858 12,675 $ 0.78
Effect of stock options 135
-------------------------
Diluted EPS $ 9,858 12,810 $ 0.77
-------------------------
Fiscal 1997
Basic EPS $ 7,526 9,654 $ 0.78
Effect of stock options 126
-------------------------
Diluted EPS $ 7,526 9,780 $ 0.77
-------------------------
Fiscal 1996
Basic EPS $ 4,030 6,780 $ 0.59
Effect of stock options 58
-------------------------
Diluted EPS $ 4,030 6,838 $ 0.59
-------------------------
</TABLE>
25
<PAGE>
At the end of fiscal 1998, 1997 and 1996, there were outstanding options to
purchase 375,000, 284,000, and 39,000 shares of common stock, respectively, that
were not included in the computation of Diluted EPS because the options'
exercise prices were greater than the average market price of the common shares.
Concentrations of Credit Risk - The Company's financial instruments that
potentially subject the Company to concentrations of credit risk consist
principally of cash and trade receivables. In the normal course of business, the
Company provides credit terms to its customers. The Company believes its
portfolio of accounts receivable is well diversified and as a result its
concentrations of credit risk are minimal. The Company performs ongoing credit
evaluations of its customers and maintains allowances for possible losses, but
typically does not require collateral.
Fair Value of Financial Instruments - The Company's financial instruments
consist primarily of cash and cash equivalents and debt obligations. Management
believes that these financial instruments bear interest at rates that
approximate prevailing market rates for instruments with similar
characteristics. Accordingly, the carrying values for these instruments are
reasonable estimates of fair value.
(3) Acquisitions
All of the Company's acquisitions have been accounted for using the purchase
method, and the excess of the purchase price over the estimated fair value of
the acquired assets less liabilities assumed has been allocated to goodwill and
other intangible assets. Certain acquisitions have contingent earnout components
of the purchase price. Earnout amounts accrued increase the amount of goodwill
related to the acquisition. The following is a summary of acquisitions during
fiscal 1998, 1997, and 1996 (in 000's):
<TABLE>
<CAPTION>
Max. Earnout
Remaining Amt. Allocated
Date Purchase As of to Intangible
Acquired Price (1) 1/03/99 Assets
------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 Acquisitions:
Mortgage Staffing, Inc. (3) January $ 3,754 $ -- $ 3,714
Hutton, Graber & Assoc., Inc. (4) January 1,803 -- 1,770
Computer Professional Resources, Inc (2,4) February 2,706 2,300 2,204
TOPS Staffing Services, Inc. (3) March 6,143 -- 5,944
Aquas, Inc. (4) May 6,489 8,251 6,469
Abacab Software, Inc. (4) May 6,001 8,900 5,377
NeoSoft, Inc. (4) July 5,752 9,000 5,225
Sterling* Truex, Inc. (3)
Truex Temporary Staffing September 7,514 -- 7,283
Devon & Devon
Personnel Services, Inc. (2,3) September 4,208 -- 3,763
Others (3,4) Various 1,512 -- 1,498
-----------------------------------
$ 45,882 $ 28,451 $ 43,247
-----------------------------------
1997 Acquisitions:
Computer Group, Inc. (2,4) January $ 2,747 $ -- $ 2,647
Bedford Consultants, Inc. (2,4) July 5,028 -- 4,409
Telecom Project Assistance, Inc. (4) July 5,377 -- 5,283
Execusoft, Inc. (4) August 7,805 -- 7,747
JesCo Technical Services, Inc. (4) October 8,482 3,369 8,447
Century Personnel, Inc. (3)
M. A. Jones Enterprises, Inc. October 24,863 167 24,761
Others (3,4) Various 6,113 -- 5,170
-----------------------------------
$ 60,415 $ 3,536 $ 58,464
-----------------------------------
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Max. Earnout
Remaining Amt. Allocated
Date Purchase As of to Intangible
Acquired Price (1) 1/03/99 Assets
------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 Acquisitions:
Abacus Consulting Group, Inc., (4)
Abacus Consultants, Inc.,
The Performance Professionals July $ 5,063 $ -- $ 5,043
Wolfe & Associates, Inc. (2,4) November 8,189 -- 8,232
Others (3,4) Various 4,367 -- 4,203
$17,619 $ -- $17,478
</TABLE>
(1) Includes earnout amounts paid or accrued as of January 3, 1999 and direct
acquisition costs.
(2) Stock acquisitions.
(3) Commercial division acquisition.
(4) Information technology division acquisition.
Pro Forma Acquisition Information - The unaudited pro forma acquisition
information for fiscal 1998 and 1997 presents the results of operations as if
the 1998 and 1997 acquisitions had occurred at the beginning of fiscal 1997. The
results of operations give effect to certain adjustments, including amortization
of intangible assets, interest expense on acquisition debt, the reduction in
expenses for the difference between compensation of employees prior to the
acquisition and their compensation following the acquisition, income taxes and
the additional common shares deemed to be outstanding as the result of the
Company's public offerings. The pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of what would have
occurred had the acquisitions been made at the beginning of the applicable years
as described above or of the results that may occur in the future.
Unaudited Pro Forma Results of Operations
(in 000's, except per share data)
-----------------------------------------
1998 1997
Service Revenues $348,388 $309,815
Income from operations 20,118 20,295
Net income 11,288 11,128
Diluted EPS 0.88 0.87
(4) Credit Facilities
The Company has an unsecured revolving credit facility with certain banks that
provides for maximum borrowings of $40 million. The agreement, which provides
for both short-term and long-term borrowings, expires in July 2001. Short-term
borrowings bear interest at a bank's prime rate (7.75% at January 3, 1999) and
long-term borrowings bear interest at LIBOR plus 1.25% (6.9% at January 3,
1999). The rate related to the amount over LIBOR may increase based upon certain
financial ratios. The agreement contains an annual commitment fee of
three-eighths of one percent on the unused portion payable quarterly. At January
3, 1999, the Company had $4.0 million in long-term borrowings outstanding. The
Company also had letters of credit of $5.8 million outstanding for purposes of
securing its workers' compensation premium obligation. The aggregate amount of
such letters of credit reduces the borrowing availability on the line of credit.
At January 3, 1999, $30.2 million was available for borrowings or additional
letters of credit.
27
<PAGE>
In September 1998, the Company made a private placement of $35 million of senior
unsecured debt consisting of two pieces. The first piece consists of senior
unsecured notes in the aggregate amount of $30 million with a final ten-year
maturity and an average maturity of seven years at a 6.95% coupon rate. The
second piece consists of senior unsecured notes in the aggregate amount of $5
million with a coupon rate of 6.72% due in a single payment in 2003. The Company
used the proceeds from the debt placement to pay off long-term borrowings under
the Company's revolving credit facility.
The Company's unsecured revolving credit facility and its senior unsecured note
agreement contain certain restrictive covenants including certain debt ratios,
maintenance of a minimum net worth and restrictions on the sale of capital
assets. As of January 3, 1999, the Company was in compliance with the covenants.
In connection with the terms and conditions of an acquisition, the Company
entered into a promissory note payable for $1.0 million. The note bears interest
at an annual rate of 8%. The principal amount of the note, together with
interest is due and payable in twelve equal quarterly installments beginning in
December 1998. The note is subject to set-off for any indemnification claims the
Company may have against the bearer.
The maturities on outstanding long-term debt are as follows (in 000's):
Fiscal Year Ending
1999 $ 313
2000 339
2001 4,273
2002 --
2003 9,286
Thereafter 25,714
---------
$ 39,925
---------
(5) Commitments and Contingencies
Noncancelable Operating Leases - The Company leases office facilities under
noncancelable operating leases. Management expects that, in the normal course of
business, leases that expire will be renewed or replaced by other leases. The
Company leases certain of these facilities from various related parties. (See
Note 10.)
Future minimum lease payments under non-cancelable operating leases are as
follows (in 000's):
Fiscal Year Ending
1999 $ 4,247
2000 3,309
2001 2,359
2002 1,638
2003 816
Thereafter 275
--------
$ 12,644
--------
Facility rental expense for the fiscal 1998, 1997 and 1996 totaled approximately
$4,120,000, $2,154,000, and $1,110,000, respectively.
Legal Matters - In the ordinary course of its business, the Company is
periodically threatened with or named as a defendant in various lawsuits or
administrative proceedings. The Company maintains insurance in such amounts and
with such coverages and deductibles as management believes to be reasonable and
prudent; however, there can be no assurance that such insurance will be adequate
to cover all risks to which the Company may be exposed. The principal risks
covered by insurance include workers' compensation, personal injury, bodily
injury, property damage, errors and omissions, fidelity losses, employer
practices liability, and general liability.
There is no pending litigation that the Company currently anticipates will have
a material adverse effect on the Company's financial condition or results of
operations.
28
<PAGE>
(6) Public Offerings
In October 1997, the Company completed a secondary public offering of its common
stock and issued 3,000,000 shares of common stock. In addition, at this same
time, the underwriters exercised their over-allotment option to purchase an
additional 600,000 common shares. The proceeds received from the offering and
the exercise of the over-allotment option, net of underwriting commissions and
offering costs, totaled approximately $56,832,000.
In December 1996, the Company completed a secondary public offering and issued
2,000,000 shares of common stock. The proceeds received from the offering net of
underwriting commissions and offering costs totaled approximately $18,098,000.
In connection with the December 1996 secondary offering, the underwriters
exercised their over-allotment option to purchase 330,000 common shares in
January 1997. The Company received net proceeds of approximately $3,000,000 from
the exercise of the over-allotment option.
(7) Income Taxes
The components of the provision for income taxes for fiscal 1998, 1997, and 1996
are as follows (in 000's):
1998 1997 1996
----------------------------------
Current provision
Federal $ 4,881 $ 4,797 $ 2,859
State 783 899 448
----------------------------------
5,664 5,696 3,307
----------------------------------
Deferred provision (benefit) -
Federal 103 (503) (714)
State 20 (94) (112)
----------------------------------
123 (597) (826)
----------------------------------
Total provision for income taxes $ 5,787 $ 5,099 $ 2,481
----------------------------------
The following is a reconciliation between the statutory federal income tax rate
and the Company's effective income tax rate which is derived by dividing the
provision for income taxes by income before provision for income taxes for the
fiscal 1998, 1997, and 1996:
1998 1997 1996
--------------------------
Statutory federal income tax rate 34.4% 34.3% 34.0%
State income taxes, net of federal benefit 4.3 3.9 3.4
Government sponsored hiring incentives (4.1) -- --
Other 2.4 2.2 0.7
--------------------------
37.0% 40.4% 38.1%
--------------------------
29
<PAGE>
The components of the deferred income tax assets and liabilities at fiscal year
end 1998 and 1997 are as follows (in 000's):
1998 1997
---------------------
Deferred income tax assets -
Workers' compensation reserves $ 1,112 $ 1,160
Allowance for doubtful accounts 325 283
Other 661 208
---------------------
2,098 1,651
---------------------
Deferred income tax liabilities -
Cash to accrual adjustments (44) (301)
Depreciation (106) (106)
Other (1,026) (199)
---------------------
(1,176) (606)
---------------------
Net deferred income tax asset $ 922 $ 1,045
---------------------
Balance sheet classification -
Current asset $ 1,849 $ 1,239
Long-term liability (927) (194)
---------------------
$ 922 $ 1,045
---------------------
(8) Stock Based Compensation
As of January 3, 1999, the Company had a stock incentive plan, which is
described below. The Company applies Accounting Principles Board ("APB") Opinion
No. 25 and related interpretations in accounting for its plan under which no
compensation cost has been recognized. Had compensation cost been determined
consistent with SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company's net income and earnings per share for fiscal 1998, 1997 and 1996 would
approximate the pro forma amounts below (in 000's, except per share data):
1998 1997 1996
-------------------------------------
Net income
As reported $ 9,858 $ 7,526 $ 4,030
Pro forma 7,849 6,081 3,735
Diluted EPS
As reported 0.77 0.77 0.59
Pro forma 0.62 0.62 0.55
Stock Price Assumptions - The fair value of each option grant has been estimated
on the grant date using the Black-Scholes option-pricing model with the
following assumptions used for grants in fiscal 1998, 1997 and 1996, in
calculating compensation cost: expected stock price volatility of 64 percent for
fiscal 1998, 56 percent for fiscal 1997, and 47 percent for fiscal 1996; an
average risk-free interest rate of 5.3 percent for fiscal 1998 and 6.2 percent
for fiscal 1997 and 1996; and an expected life of five years for director
options and seven years for employee options for fiscal 1998, 1997, and 1996.
Stock Incentive Plan - The Company established a stock incentive plan (the
"Plan") which allows for the issuance of a maximum of 1.8 million shares of
common stock to officers, directors, consultants and other key employees. The
Plan allows for the grant of incentive or nonqualified options, stock
appreciation rights, restricted shares of common stock or stock units and is
administered by the Board of Directors. Incentive options and nonqualified
options are granted at not less than 100 percent of the fair market value of the
underlying common stock on the date of grant. At January 3, 1999, the plan had
approximately 595,000 options available to grant.
30
<PAGE>
The Board of Directors determines the number, type of award and terms and
conditions, including any vesting conditions. For fiscal 1998, 1997, and 1996
only incentive and nonqualified options had been granted under the Plan.
Employee stock options generally vest 20 percent at the date of grant and 16
percent on each of the next five anniversaries thereof. The Plan also provides
formula award grants to non-employee directors. Under the formula award, each
non-employee director is granted 5,000 options at the time of the director's
appointment to the board. Such options are vested 20% at the time of grant and
vest 20% on each of the next four anniversaries thereof. The formula award also
provides for an annual grant to non-employee directors of 1,000 options, which
are immediately exercisable on the date of grant. Stock options granted to
employees expire no later than ten years from the date of grant and stock
options granted to non-employee directors expire no later than five years from
the date of grant.
A summary of the stock option activity is as follows (in 000's, except per share
data):
Weighted Avg.
Exercise
Price Per
Employees Directors Share
-------------------------------------
Outstanding at December 31, 1995 129 20 $ 6.50
Granted 132 24 10.36
Exercised (5) (1) 6.50
Forfeited (7) -- 6.50
-------------------------------------
Outstanding at December 29, 1996 249 43 8.68
Granted 270 14 16.95
Exercised (17) -- 8.41
Forfeited (5) -- 9.69
-------------------------------------
Outstanding at December 28, 1997 497 57 12.92
Granted 681 60 12.57
Exercised (36) -- 11.59
Forfeited (116) (9) 17.06
-------------------------------------
Outstanding at January 3, 1999 1,026 108 12.29
-------------------------------------
Exercisable at January 3, 1999 331 46 $ 12.18
-------------------------------------
The weighted average fair value of options granted was $7.53, $10.73, and $5.91
for grants made during fiscal 1998, 1997 and 1996, respectively. The following
is additional information with respect to the stock options (shares in 000's):
<TABLE>
<CAPTION>
Weighted-
Outstanding Average
as of Remaining Weighted- Exercisable Weighted
Exercise January 3, Contractual Average At January Average
Price Range 1999 Life Exercise Price 3, 1999 Exercise Price
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$6.45 - $11.45 614 8.7 $ 7.41 202 $ 7.58
11.46 - 16.45 58 7.6 13.13 27 12.90
16.46 - 21.50 462 8.9 18.89 148 18.47
---------------------------------------------------------------------------
1,134 8.7 $ 12.38 377 $ 12.23
---------------------------------------------------------------------------
</TABLE>
(9) Employee Benefit Plans
The Company has a 401(k) defined contribution plan. Employee contributions may
be invested in several alternatives. Company contributions to the plan,
including matching contributions, may be made at the discretion of the Company.
The Company's contributions to the plan were approximately $348,000, $60,000,
and $48,000 for fiscal 1998, 1997, and 1996, respectively.
31
<PAGE>
During 1997, the Company established a deferred compensation plan for certain
key officers and employees that provide the opportunity to defer a portion of
their compensation. Amounts deferred are held in a Rabbi Trust, which invests in
various mutual funds as directed by the participants. The trust assets are
recorded as a long-term other asset on the accompanying consolidated balance
sheet because such amounts are subject to the claim of creditors. The Company's
deferred compensation liability represents amounts deferred by participants plus
any earnings on the trust assets. This amount totaled approximately $397,000 at
January 3, 1999.
(10) Related Party Transactions
In December 1997, the Company purchased certain assets and substantially all of
the business of TSI of Utah, Inc. ("TSIU"), a company that provides industrial
temporary staffing services and was incorporated by an adult son of certain
significant shareholders of the Company, for approximately $1,285,000; of which
$600,000 was paid in cash with the remaining $685,000 in a note payable. As of
the date of acquisition, the Company had receivables of approximately $625,000
due from TSIU that were used to reduce the note payable to TSIU; the balance of
the note was paid in fiscal 1998. The excess of the initial purchase price over
the estimated fair value of the acquired tangible assets was approximately
$1,270,000 of which $1,190,000 has been allocated to goodwill and approximately
$80,000 has been allocated to other intangible assets.
Prior to the acquisition, TSIU had entered into a franchise agreement with the
Company to use the TSI name. Under the franchise agreement the Company agreed to
fund employee costs and collect customer billings on behalf of TSIU. The Company
received a service fee based upon a percentage of TSIU's gross profit. Under the
agreement the Company recorded service fee revenues of approximately $133,000,
and $126,000 for fiscal 1997 and 1996, respectively. The Company believes that
the terms of the franchise agreement were at least as favorable as the terms
that could have been obtained from an unaffiliated third party in a similar
transaction.
The Company leases its corporate office building from the adult children of
certain significant shareholders of the Company under a ten-year lease agreement
with an option to renew for ten additional years. Rental expense during fiscal
1998, 1997 and 1996 amounted to approximately $87,000, $86,000, and $77,000,
respectively. Future minimum lease payments related to this lease will average
approximately $97,000 each fiscal year. The Company believes that the terms of
the lease are at least as favorable as the terms that could have been obtained
from an unaffiliated third party in a similar transaction.
During fiscal 1997, the Company entered into an employment agreement with one of
its directors to assist and advise the Company with respect to identifying and
evaluating potential acquisitions. Prior to her employment, the Company had a
consulting agreement with this director to perform the same functions.
Compensation under the consulting agreement was $3,500 per month, which included
the $1,000 per board meeting fee otherwise payable. For fiscal 1997 and 1996,
consulting expense was $24,500 and $42,000, respectively.
During fiscal 1998, companies owned by two of the adult children of certain
significant shareholders leased employees from ServCom Staff Management, Inc.
("ServCom"), a wholly owned subsidiary of the Company. ServCom generated
revenues totaling approximately $270,500 related to leasing employees to the
three companies owned by these adult children. Outstanding receivables at
year-end related to these agreements totaled approximately $38,000. The Company
believes that the terms of this relationship are similar to those that would be
given to an unaffiliated third party in a similar agreement.
(11) Segment
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information," effective for periods beginning after
December 15, 1997. Pursuant to SFAS No. 131 an operating segment is defined as
"a component of an enterprise: 1) that engages in business activities from which
it may earn revenues and incur expenses, 2) for which discrete financial
information is available, and 3) that is regularly reviewed by the enterprise's
chief operating decision maker to make decisions about allocation of resources."
Based on the types of services offered to customers, the Company has identified
two reportable operating segments: commercial staffing and information
technology ("IT") segments. The commercial staffing segment provides staffing
solutions to companies by furnishing temporary clerical, industrial,
light-industrial, technical, and professional services. The IT segment provides
staffing, outsourcing, and consulting services in IT related fields.
32
<PAGE>
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies (Note 2).
Information concerning continuing operations by operating segment for each of
the three fiscal years is as follows (in 000's):
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------
<S> <C> <C> <C>
Revenues
Commercial $ 252,916 $ 177,551 $ 132,715
IT 77,411 31,700 3,448
-------------------------------------------------
$ 330,327 $ 209,251 $ 136,163
-------------------------------------------------
Operating Profit
Commercial $ 12,177 $ 11,438 $ 8,523
IT 7,901 3,183 64
Other (unallocated) (3,301) (2,271) (1,880)
-------------------------------------------------
$ 16,777 $ 12,350 $ 6,707
-------------------------------------------------
Depreciation and Amortization
Commercial $ 2,826 $ 1,195 $ 675
IT 2,534 962 180
-------------------------------------------------
$ 5,360 $ 2,157 $ 855
-------------------------------------------------
Identifiable Assets
Commercial $ 97,339 $ 81,114 $ 33,064
IT 82,552 35,356 12,444
Other (unallocated) 3,018 1,820 1,785
-------------------------------------------------
$ 182,909 $ 118,290 $ 47,293
-------------------------------------------------
Additions to Long-Lived Assets (1)
Commercial $ 1,681 $ 20,482 $ 7,026
IT 27,993 19,475 11,665
-------------------------------------------------
$ 59,674 $ 39,957 $ 18,691
-------------------------------------------------
</TABLE>
(1) Includes property & equipment and intangible asset additions
33
<PAGE>
(12) Selected Quarterly Financial Data (Unaudited)
A summary of quarterly financial information for fiscal 1998 and 1997 is as
follows (in 000's, except per share data):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------------------------------------------------------
<S> <C> <C> <C> <C>
1998:
Service revenues $70,158 $82,414 $87,385 $90,370
Gross profit 16,006 19,256 20,496 21,438
Net income 2,397 3,035 3,404 1,022
Net income per common share:
Basic 0.19 0.24 0.27 0.08
Diluted 0.19 0.24 0.27 0.08
1997:
Service revenues $40,846 $46,518 $54,389 $67,498
Gross profit 8,707 10,210 12,353 15,441
Net income 1,318 1,639 2,115 2,454
Net income per common share:
Basic 0.15 0.18 0.23 0.21
Diluted 0.15 0.18 0.23 0.21
</TABLE>
34
<PAGE>
Report of Independent Public Accountants
To SOS Staffing Services, Inc.:
We have audited the accompanying consolidated balance sheets of SOS Staffing
Services, Inc. (a Utah Corporation) and subsidiaries as of January 3, 1999 and
December 28, 1997, and the related consolidated statements of income,
shareholders' equity and cash flows for each of three fiscal years in the period
ended January 3, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of SOS Staffing
Services, Inc. and subsidiaries as of January 3, 1999 and December 28, 1997, and
the results of their operations and their cash flows for each of the three
fiscal years in the period ended January 3, 1999 in conformity with generally
accepted accounting principles.
/s/ Atthur Anderson LLp
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
February 8, 1999
35
<PAGE>
SOS Staffing Services, Inc. is dedicated to quality service. We commit each of
our offices and the special talents of each employee to providing a quality
system of support to our clients. Our, goal is to meet or exceed the
requirements and expectations of our customers, staff, temporary associates and
consulting professionals.
36
<PAGE>
Corporate Information
- ---------------------
Shareholder inquiries should be directed to:
Investor Relations
SOS Staffing Services, Inc.
1415 South Main Street
Salt Lake City, UT 84115
Telephone: (801) 484-4400
www.sosstaffing.com
e-mail: [email protected]
Transfer Agent and Registrar
- ----------------------------
Zions First National Bank, N.A.
Stock Transfer Services
1 South Main Street
Salt Lake City, Utah 84101
Telephone: (801) 524-4812
Independent Accountants
- -----------------------
Arthur Andersen LLP
15 West South Temple
Suite 700
Salt Lake City, Utah 84101-1533
Telephone: (801) 533-0820
Investor Relations
- ------------------
Jordan Richard Assoc.
1846 South 1200 East
PO Box 52210
Salt Lake City, Utah 84111
Telephone: (801) 268-8610
Stock Listing
- -------------
SOS Staffing Services, Inc.'s common
stock is traded on the Nasdaq National
Market tier of The Nasdaq Stock Market
under the symbol: "SOSS". The stock
table abbreviation is "SOS Stffg".
Form 10-K
- ---------
Copies of the Company's annual report to
the Securities and Exchange Commission
on Form 10-K may be obtained, without
charge, by contacting the Investor
Relations Department at SOS Staffing
Services, Inc.
37
<PAGE>
Common Stock Data
- -----------------
As of March 8, 1999, the Company had 76
stockholders of record. Based upon
shareholder mailings, the Company
believes that there are in excess of
4,000 shareholders of beneficial
interest.
The following table sets forth the high
and low sales prices of the Company's
common stock for the periods indicated:
High Low
1996
First Quarter 13 1/8 8 3/8
Second Quarter 15 10 7/8
Third Quarter 12 7/8 8 3/4
Fourth Quarter 12 7/8 9 1/4
1997
First Quarter 13 3/8 10
Second Quarter 15 3/4 10 7/8
Third Quarter 19 1/2 14 5/8
Fourth Quarter 24 16 1/2
1998
First Quarter 26 3/8 17 1/4
Second Quarter 27 17 1/8
Third Quarter 21 5/8 12
Fourth Quarter 14 1/2 6 1/2
On March 8, 1999, the closing price of
the Company's common stock, as reported
on the NASDAQ National Market was 8 3/4.
There have been no cash dividends paid.
The Company currently intends to retain
future earnings for its operations and
expansion of its business and does not
anticipate paying any cash dividends in
the future.
Annual Meeting
- --------------
Shareholders and other interested
parties are invited to attend the Annual
Meeting of Shareholders on May 19, 1999
at 1:30 p.m. (Mountain Daylight Time).
The meeting will be held at the Wyndham
Hotel, located at 215 South West Temple
in Salt Lake City, Utah.
38
<PAGE>
Directors and Officers
- ----------------------
JoAnn W. Wagner
Chairman of the Board, President and
Chief Executive Officer
Stanley R. deWaal(1)
Director
President, DeWaal Keeler & Co., P.C.
Salt Lake City, Utah
Samuel C. Freitag(1,2)
Director
Senior Managing Director
George K. Baum Merchant Banc, L.L.C.
Kansas City, Missouri
Michael A. Jones
Director
Executive Vice President
R. Thayne Robson(1,2)
Director
Professor of Management and Research, Professor of Economics, Univ. of Utah
Salt Lake City, Utah
Randolph K. Rolf(2)
Director
Kansas City, Missouri
Richard J. Tripp
Director
Senior Vice President
W.B. Collings
Vice President, Treasurer and
Assistant Secretary
Gary B. Crook
Executive Vice President
Chief Financial Officer
Dennis N. Emery
Vice President
Controller
John K. Morrison
Vice President, General Counsel and
Secretary
John E. Schaffer
Senior Vice President
(1) Member, Audit Committee
(2) Member, Compensation Committee
39
SUBSIDIARY COMPANIES OF SOS STAFFING SERVICES, INC.
Name of Subsidiary State of Incorporation
- ------------------ ----------------------
Bedford Consultants, Inc California
Computer Professional Resources, Inc. Kansas
ServCom Staff Management, Inc. Utah
SOS Collection Services, Inc. Arizona
SOS Information Technology Company Utah
Inteliant Corporation New Mexico
Devon & Devon Personnel Services, Inc California
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report incorporated by reference in this Form 10-K, into the Company's
previously filed Registration Statements on Form S-8, File Nos. 33-96362 and
333-1422.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-START> DEC-29-1998
<PERIOD-END> JAN-03-1999
<CASH> 5315
<SECURITIES> 0
<RECEIVABLES> 45389
<ALLOWANCES> (762)
<INVENTORY> 0
<CURRENT-ASSETS> 53878
<PP&E> 10447
<DEPRECIATION> (3103)
<TOTAL-ASSETS> 182909
<CURRENT-LIABILITIES> 26889
<BONDS> 0
0
0
<COMMON> 127
<OTHER-SE> 114479
<TOTAL-LIABILITY-AND-EQUITY> 182909
<SALES> 330327
<TOTAL-REVENUES> 330327
<CGS> 253131
<TOTAL-COSTS> 253131
<OTHER-EXPENSES> 58936
<LOSS-PROVISION> 959
<INTEREST-EXPENSE> 1660
<INCOME-PRETAX> 15645
<INCOME-TAX> 5787
<INCOME-CONTINUING> 9858
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9858
<EPS-PRIMARY> 0.78
<EPS-DILUTED> 0.77
</TABLE>
