-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EP4Rc3ETUQr0VrRisOLLii5hFaKx5Cyd7+vLkBAamWwgkRtoD0a1q2c+98OmNTwp tWOi+YopyjTHggGZ4dZbgQ== 0000950134-98-003907.txt : 19980508 0000950134-98-003907.hdr.sgml : 19980508 ACCESSION NUMBER: 0000950134-98-003907 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980507 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: STAFFMARK INC CENTRAL INDEX KEY: 0001017968 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HELP SUPPLY SERVICES [7363] IRS NUMBER: 710788538 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20971 FILM NUMBER: 98612935 BUSINESS ADDRESS: STREET 1: 302 EAST MILLSAP CITY: FAYETTEVILLE STATE: AR ZIP: 72703 BUSINESS PHONE: 5019736000 MAIL ADDRESS: STREET 1: 302 EAST MILLSAP CITY: FAYETTEVETTE STATE: AR ZIP: 72703 10-Q 1 FORM 10-Q FOR QUARTER ENDED MARCH 31, 1998 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 1998 [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _____ to _____ COMMISSION FILE NUMBER: 0-20971 STAFFMARK, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 71-0788538 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 302 EAST MILLSAP ROAD FAYETTEVILLE, AR 72703 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (501) 973-6000 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 --- --- The number of shares of Common Stock of the Registrant, par value $.01 per share, outstanding at May 7, 1998 was 19,768,993. 2 STAFFMARK, INC. FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998 INDEX
INDEX PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS StaffMark, Inc. Consolidated Financial Statements Consolidated Statements of Income 3 Consolidated Balance Sheets 4 Consolidated Statements of Cash Flows 5 Notes to Consolidated Financial Statements 6 ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction 9 Results for the Three Months Ended March 31, 1998 Compared to Results for the Three Months Ended March 31, 1997 9 Liquidity and Capital Resources 10 PART II - OTHER INFORMATION ITEM 1 -- LEGAL PROCEEDINGS 11 ITEM 2 -- CHANGES IN SECURITIES 11 ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K 12 (a) Exhibits (b) Reports on Form 8-K SIGNATURES 12
2 3 STAFFMARK, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ---------------------------------- 1998 1997 ------------------ --------------- SERVICE REVENUES $ 146,812,968 $66,409,170 COST OF SERVICES 110,821,659 51,776,771 ------------- ----------- Gross profit 35,991,309 14,632,399 ------------- ----------- OPERATING EXPENSES: Selling, general and administrative 23,411,143 10,387,992 Depreciation and amortization 2,375,209 705,576 ------------- ----------- Operating income 10,204,957 3,538,831 ------------- ----------- OTHER INCOME (EXPENSE): Interest expense (628,148) (50,488) Other, net 27,676 238,706 ------------- ----------- INCOME BEFORE INCOME TAXES 9,604,485 3,727,049 PROVISION FOR INCOME TAXES 3,937,839 1,528,090 ------------- ----------- NET INCOME $ 5,666,646 $ 2,198,959 ============= =========== BASIC EARNINGS PER SHARE $ 0.29 $ 0.16 ============= =========== DILUTED EARNINGS PER SHARE $ 0.28 $ 0.16 ============= ===========
The accompanying notes are an integral part of these statements. 3 4 STAFFMARK, INC. CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, 1998 1997 ---------------- ------------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 4,657,518 $ 304,995 Accounts receivable, net of allowance for doubtful accounts 66,271,224 56,707,089 Prepaid expenses and other 4,882,193 4,706,313 Deferred income taxes 1,342,747 851,284 ------------ ------------ Total current assets 77,153,682 62,569,681 PROPERTY AND EQUIPMENT, net 11,609,010 9,536,164 INTANGIBLE ASSETS, net 203,860,705 172,807,775 OTHER ASSETS 4,544,512 3,735,628 ------------ ------------ $297,167,909 $248,649,248 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and other accrued liabilities $ 12,604,677 $ 19,606,840 Payroll and related liabilities 18,147,152 11,580,706 Reserve for workers' compensation claims 6,048,486 6,108,748 Income taxes payable 4,390,638 2,677,191 ------------ ------------ Total current liabilities 41,190,953 39,973,485 LONG TERM DEBT 49,950,000 12,000,000 OTHER LONG TERM LIABILITIES 34,183 76,030 DEFERRED INCOME TAXES 1,333,086 1,314,629 STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value; authorized shares of 1,000,000; no shares issued or outstanding -- -- Common stock, $.01 par value; authorized shares of 26,000,000; shares issued and outstanding of 19,399,680 in 1998 and 19,138,636 in 1997 193,997 191,386 Paid-in capital 179,641,415 176,195,026 Retained earnings 24,824,275 18,898,692 ------------ ------------ Total stockholders' equity 204,659,687 195,285,104 ------------ ------------ $297,167,909 $248,649,248 ============ ============
The accompanying notes are an integral part of these balance sheets. 4 5 STAFFMARK, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ----------------------------- 1998 1997 ------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 5,666,646 $ 2,198,959 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 2,375,209 705,576 Provision for bad debts 239,848 148,528 Deferred income taxes (599,306) (1,088,101) Change in operating assets and liabilities, net of effects of acquisitions: Accounts receivable (5,288,583) (5,882,707) Prepaid expenses and other 2,100,355 (265,514) Other assets (2,082,198) 108,005 Accounts payable and other accrued liabilities (4,996,155) 434,499 Outstanding checks -- (176,156) Payroll and related liabilities 5,745,193 3,284,618 Reserve for workers' compensation claims 39,995 568,789 Income taxes payable 1,715,278 (742,316) Accrued interest and other (622,913) (188,304) ------------ ------------ Net cash provided by (used in) operating activities 4,293,369 (894,124) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of businesses, net of cash acquired (35,475,285) (9,129,994) Capital expenditures (2,139,630) (369,880) ------------ ------------ Net cash used in investing activities (37,614,915) (9,499,874) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of debt 45,300,000 319,250 Payments on borrowings (7,350,000) -- Deferred financing costs (275,931) -- ------------ ------------ Net cash provided by financing activities 37,674,069 319,250 ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,352,523 (10,074,748) CASH AND CASH EQUIVALENTS, beginning of period 304,995 13,856,422 ------------ ------------ CASH AND CASH EQUIVALENTS, end of period $ 4,657,518 $ 3,781,674 ============ ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Income taxes paid $ 2,794,085 $ 4,625,960 ============ ============ Interest paid, including commitment fees $ 502,564 $ 36,229 ============ ============
The accompanying notes are an integral part of these statements. 5 6 STAFFMARK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION: StaffMark, Inc. ("StaffMark" or the "Company") provides diversified staffing, professional and consulting services to businesses, professional and service organizations, governmental agencies and medical niches. The Company recognizes revenues upon the performance of services. The Company generally compensates its temporary associates and consultants only for hours actually worked, therefore wages of the temporary associates and consultants are a variable cost that increase or decrease as revenues increase or decrease. However, certain of the Company's professional and information technology consultants are full-time, salaried employees. Cost of services primarily consists of wages paid to temporary associates, payroll taxes, workers' compensation and other related employee benefits. Selling, general and administrative expenses are comprised primarily of administrative salaries, benefits, marketing, rent and recruitment expenses. As of March 31, 1998, StaffMark operated offices in 27 states, Canada, South Africa and the United Kingdom and provides staffing in the Commercial, Professional/Information Technology ("Professional/IT") and Specialty Niche service lines. StaffMark extends trade credit to customers representing a variety of industries. There are no individual customers that account for more than 10% of service revenues of StaffMark in any of the periods presented. 2. BASIS OF PRESENTATION: The accompanying interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to ensure the information presented is not misleading. The accompanying interim financial statements reflect all adjustments (which were of a normal, recurring nature) that, in the opinion of management, are necessary to present fairly the Company's financial position, results of operations and cash flows as of and for the interim periods presented. The accompanying statements of income and cash flows for the three months ended March 31, 1998 have been restated to reflect the July 1997 acquisition of Baker Street Group, Inc., which was accounted for as a pooling-of-interests. All significant intercompany transactions have been eliminated in the accompanying consolidated financial statements. Additionally, certain reclassifications have been made to prior period balances in order to conform with the current period presentation. These financial statements should be read in conjunction with the audited financial statements of the Company and notes thereto included in StaffMark's Annual Report on Form 10-K as filed with the SEC on March 13, 1998. 3. SEASONALITY: The timing of certain holidays, weather conditions and seasonal vacation patterns may cause the Company's quarterly results of operations to fluctuate. The Company expects to realize higher revenues, operating income and net income during the second and third quarters and lower revenues, operating income and net income during the first and fourth quarters. Accordingly, the results of operations for an interim period are not necessarily indicative of the results of operations for a full fiscal year. 6 7 4. BUSINESS COMBINATIONS: During the first quarter of 1998 the Company acquired four businesses (the "1998 Acquisitions"). Strategic Legal Resources, LLC ("Strategic Legal") is located in New York City and provides attorneys and paralegals to law firms, corporations and financial institutions. Strategic Legal operates in the Professional/IT division. Independent Software Solutions, Inc. ("ISS") is located in Jacksonville, Florida and provides information technology and consulting services. ISS operates in the Professional/IT division. Temporary Tech ("Temp Tech") is located in Raleigh, North Carolina and provides staffing of laboratory professionals in Research Triangle Park. Temp Tech operates in the Specialty Niche division. FirstChoice Staffing, Inc. ("FirstChoice") is located in Dallas, Texas and provides clerical and administrative staffing services. FirstChoice operates in the Commercial division. These acquisitions had cumulative fiscal 1997 revenues of approximately $24.6 million. The accompanying balance sheet as of March 31, 1998 includes preliminary allocations of the respective purchase prices and are subject to final adjustment. The excess of purchase price over net assets acquired has been included in intangible assets and is being amortized over a period of 30 years. The Company acquired 19 staffing and professional service companies during 1997 (the "1997 Acquisitions"). Of the 1997 Acquisitions, the acquisitions of Flexible Personnel, Inc. and related entities, Global Dynamics, Inc., Lindenberg & Associates, Inc., Expert Business Systems, Incorporated, H. Allen & Company, Inc., RHS Associates, Inc., EMJAY Careers, Inc. and EMJAY Contracts, Inc., and Structured Logic Company, Inc. were considered significant and are therefore collectively referred to as the "Significant 1997 Acquisitions". The unaudited consolidated results of operations on a pro forma basis as though the Significant 1997 Acquisitions and Strategic Legal had been acquired as of the beginning of 1997 are presented below. Note that the pro forma information presented below does not reflect the reductions in salaries that certain owners of the Significant 1997 Acquisitions and Strategic Legal have agreed to in conjunction with the acquisitions discussed above. Other acquisitions made by the Company during the three months ended March 31, 1998 have not been significant and, therefore, have not been included in the following pro forma presentation. Management believes this information reflects all adjustments necessary for a fair presentation of results for the interim periods. The pro forma results of operations for the three months ended March 31, 1998 and 1997 are not necessarily indicative of the results to be expected for the full year.
THREE MONTHS ENDED MARCH 31, -------------------------------- 1998 1997 ---- ---- Revenues $146,812,968 $ 102,469,668 ============ =============== Net income $ 5,666,646 $ 3,130,868 ============ =============== Basic earnings per share $ 0.29 $ 0.21 ============ =============== Diluted earnings per share $ 0.28 $ 0.20 ============ ===============
In addition to the purchase prices disclosed below, certain of the acquisition agreements include provisions for the payment of additional consideration which is contingent upon the achievement of certain performance measures of the acquired company, typically during the twelve months immediately following the transaction. Although the contingent consideration could be significant to the accompanying financial statements, the amounts are not currently determinable and, accordingly, have not been reflected in the Company's financial statements. The obligations for this contingent consideration, which will be payable in a combination of cash and Common Stock, will be recorded in the Company's financial statements when they become fixed and determinable. The aggregate consideration paid during the three months ended March 31, 1998, which includes consideration paid for companies acquired in the current period as well as contingent consideration paid to the former owners of companies acquired in previous quarters consisted of $35.5 million in cash and 262,987 shares of the Company's Common Stock. 7 8 5. EARNINGS PER COMMON SHARE: In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share," which established new standards for computing and presenting earnings per share information. Basic earnings per share is determined by dividing net income by the weighted average common shares outstanding during each period. Diluted earnings per share reflects the potential dilution that could occur assuming exercise of all outstanding stock options. A reconciliation of net income and weighted average shares used in computing basic and diluted earnings per share is as follows:
THREE MONTHS ENDED MARCH 31, ---------------------------- 1998 1997 ---- ---- BASIC EARNINGS PER SHARE: Net income applicable to common shares $ 5,666,646 $ 2,198,959 =========== =========== Weighted average common shares outstanding 19,386,940 13,764,449 =========== =========== Basic earnings per share of common stock $ 0.29 $ 0.16 =========== =========== DILUTED EARNINGS PER SHARE: Net income applicable to common shares $ 5,666,646 $ 2,198,959 =========== =========== Weighted average common shares outstanding 19,386,940 13,764,449 Dilutive effect of stock options 847,744 91,135 ----------- ----------- Weighted average common shares, assuming dilutive effect of stock options 20,234,684 13,855,584 =========== =========== Diluted earnings per share of common stock $ 0.28 $ 0.16 =========== ===========
8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The information below discusses the results of operations for the three months ended March 31, 1998 as compared to the results of operations for the three months ended March 31, 1997. The financial information provided below has been rounded in order to simplify its presentation. However, the percentages provided below are calculated using the detailed financial information contained in the applicable financial statements, the notes thereto and the other financial data included elsewhere in this Form 10-Q. This filing contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current plans and expectations of the Company and involve risks and uncertainties that could cause actual future activities and results of operations to be materially different from those set forth in the forward-looking statements. Important factors that could cause actual results to differ include, among others, risks associated with acquisitions, fluctuations in operating results because of acquisitions and variations in stock prices, changes in government regulations, competition, risks of operations and growth of the newly acquired businesses. RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1997 Revenues. Revenues increased $80.4 million, or 121.1%, to $146.8 million for the three months ended March 31, 1998 compared to $66.4 million for the three months ended March 31, 1997. This increase was attributable to the results from the 1997 Acquisitions which accounted for approximately $53.7 million of the increase and the results from the 1998 Acquisitions which accounted for approximately $9.2 million of the increase. Also accounting for this increase is an overall increase in the demand for staffing services and internal growth of the Company's existing operations. Cost of Services. Cost of services increased $59.0 million, or 114.0%, to $110.8 million for the three months ended March 31, 1998 compared to $51.8 million for the three months ended March 31, 1997. This increase was primarily attributable to an increase in staffing payroll and related benefit costs associated with increased revenues and internal growth. Also accounting for the increase were the results from the 1997 Acquisitions which accounted for approximately $38.8 million of this increase and the 1998 Acquisitions which accounted for approximately $6.4 million of the increase. Gross Profit. Gross profit increased $21.4 million, or 146.0%, to $36.0 million for the three months ended March 31, 1998 compared to $14.6 million for the three months ended March 31, 1997. Gross margin increased to 24.5% for the three months ended March 31, 1998 compared to 22.0% for the three months ended March 31, 1997. The increase in gross margin is primarily a result of a larger portion of the Company's revenue base being directly related to the Professional/IT division, which provides higher profit margins than the Commercial division due to the specialized expertise of the temporary personnel. The increase in gross profit is primarily attributable to the Company's increased revenues from internal growth, the 1997 Acquisition and the 1998 Acquisitions. Operating Expenses. SG&A increased $13.0 million, or 125.4%, to $23.4 million for the three months ended March 31, 1998 compared to $10.4 million for the three months ended March 31, 1997. This increase was primarily attributable to the results from the 1997 Acquisitions which accounted for approximately $8.2 million of the increase and the 1998 Acquisitions which accounted for $1.2 million of the increase. Also accounting for the increase were increased costs associated with a larger revenue base and the costs associated with the development of corporate infrastructure. SG&A as a percentage of revenues increased to 16.0% for the three months ended March 31, 1998 compared to 15.6% for the three months ended March 31, 1997. Depreciation and amortization expense increased $1.7 million, or 236.6%, to $2.4 million for the three months ended March 31, 1998 compared to $706,000 for the three months ended March 31, 1997. This increase is primarily attributable to amortization of the goodwill associated with the Company's acquisitions. 9 10 Operating Income. Operating income increased $6.7 million, or 188.4%, to $10.2 million for the three months ended March 31, 1998 compared to $3.5 million for the three months ended March 31, 1997. The Company's operating margin increased to 7.0% for the first quarter of 1998 compared to 5.3% for the first quarter of 1997. LIQUIDITY AND CAPITAL RESOURCES The Company's primary source of funds is from operations, proceeds of Common Stock offerings and borrowings under the Credit Facility (as defined below). The Company's principal uses of cash are to fund acquisitions, working capital and capital expenditures. The Company generally pays its temporary associates and consultants weekly for their services, while receiving payments from customers 30 to 60 days from the date of the invoice. As new offices are established or acquired, or as existing offices are expanded, the Company has increasing requirements for cash resources to fund growing operations. In March 1998, the Company amended and restated its credit facility with Mercantile Bank to increase the borrowing availability from $100.0 million to $175.0 million (the "Credit Facility"). The Credit Facility matures on April 1, 2003 and interest on any borrowings is computed at the Company's option of either LIBOR or Mercantile's prime rate and incrementally adjusted based on the Company's operating leverage ratios. As a result of the recent amendment to the Credit Facility, there is no distinction between a revolving credit line for operations and an acquisition facility, such that borrowings, whether for operations or for acquisitions, may be made up to $175.0 million. For the three month period ended March 31, 1997, the Company paid a quarterly commitment fee equal to 0.25% of the total Credit Facility ($50.0 million at that time). From March 31, 1997 to March 31, 1998, the quarterly commitment fee was determined by multiplying the unused portion of the Credit Facility by a percentage which varied from 0.25% to 0.375% based on the Company's operating leverage ratio. Subsequent to March 31, 1998, the quarterly commitment fee will be determined by multiplying the unused portion of the Credit Facility by a percentage which varies from 0.1875% to 0.25% based on the Company's operating leverage ratio. The Credit Facility is secured by all of the assets of the Company and a pledge of 100% of the stock of all of the Company's subsidiaries. During the three months ended March 31, 1998, the Company had net borrowings of approximately $38.0 million on the Credit Facility which were used: (i) to pay the cash consideration for several of the 1998 Acquisitions; (ii) to fund the additional cash consideration for several of the Company's 1997 Acquisitions; and (iii) for general corporate purposes. As of May 5, 1998, $53.0 million was outstanding on the Credit Facility. The Company is obligated under various acquisition agreements to pay additional consideration, which will be paid in a combination of cash and Common Stock, to certain former stockholders of acquired companies. Management believes that neither the total amount of these contingent payments nor the specific combination of cash and Common Stock consideration can be currently determined. Management believes that its cash flows from operations, the Credit Facility and its ability to issue equity or debt securities will provide sufficient liquidity and capital resources to satisfy these obligations. Net cash provided by (used in) operating activities was $4.3 million and ($894,000) for the three months ended March 31, 1998 and 1997, respectively. The net cash provided by or used in operating activities for the periods presented was primarily attributable to net income and changes in operating assets and liabilities. Net cash used in investing activities was $37.6 million and $9.5 million for the three months ended March 31, 1998 and 1997, respectively. Cash used in investing activities for both periods was primarily related to the Company's acquisitions. Net cash provided by financing activities was $37.7 million and $319,000 for the three months ended March 31, 1998 and 1997, respectively. Cash provided by financing activities for both periods was primarily attributable to the proceeds from debt issued in conjunction with the Company's acquisitions. As a result of the foregoing, combined cash and cash equivalents increased by $4.4 million in the first quarter of 1998 and decreased by $10.0 million in the first quarter of 1997. 10 11 Management believes that its cash flows from operations, borrowings available under the Credit Facility, offerings of debt or equity securities and the use of Common Stock as partial consideration for acquisitions will provide sufficient liquidity or acquisition currency to execute the Company's acquisition and internal growth plans through the expiration of the Credit Facility. Should the Company accelerate its acquisition program, the Company may need to seek additional financing through the public or private sale of equity or debt securities. There can be no assurance that the Company could secure such financing if and when it is needed or on terms the Company deems acceptable. Management plans to periodically reassess the adequacy of the Company's liquidity position, taking into consideration current and anticipated operating cash flow, anticipated capital expenditures, acquisition plans and offerings of debt or equity securities, in order to ensure the Credit Facility is adequate to meet the Company's needs on a short-term and long-term basis. PART II ITEM 1. LEGAL PROCEEDINGS The Company is not a party to any material pending legal proceedings. The Company at times does have routine litigation incidental to its business. In the opinion of the Company's management, such proceedings should not, individually or in the aggregate, have a material adverse effect on the Company's results of operations or financial condition. The Company maintains insurance in such amounts and with such coverage and deductibles as management believes are reasonable. ITEM 2. CHANGES IN SECURITIES In connection with the acquisition of Strategic Legal, the Company issued 46,320 shares of Common Stock to the members of Strategic Legal in January 1998. In connection with the acquisition of ISS, the Company issued 80,910 shares of Common Stock to the stockholders of ISS in February 1998. In connection with the acquisition of Temp Tech, the Company issued 9,603 shares of Common Stock to the stockholders of Temp Tech in March 1998. In connection with the acquisition of FirstChoice, the Company issued 116,517 shares of Common Stock to the stockholders of FirstChoice in March 1998. Each of these transactions was effected without registration of the relevant security under the Securities Act in reliance upon the exemption provided by Section 4(2) of the Securities Act for transactions not involving a public offering. 11 12 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.22 Amended and Restated Credit Agreement dated March 9, 1998, by and among StaffMark, Inc., the lenders named therein (the "Lenders") and Mercantile Bank National Association ("Mercantile"), as agent on behalf of the Lenders. 10.23 First Amendment to the Amended and Restated Credit Agreement dated March 16, 1998, by and among StaffMark, Inc., the Lenders and Mercantile, as agent on behalf of the Lenders. 10.24 StaffMark, Inc. Amended and Restated 1996 Stock Option Plan. 10.25 StaffMark, Inc. Employee Stock Purchase Plan, as amended. 10.26 StaffMark, Inc. Stock Election Plan for Non- Employee Directors. 10.27 StaffMark, Inc. Non-Qualified 401(k) Plan. 11.1 Statement re: computation of per share earnings, reference is made to Note 5 of the StaffMark, Inc. Consolidated Financial Statements contained in this Form 10-Q. 27.1 Financial Data Schedule for the three months ended March 31, 1998, submitted to the SEC in electronic format.
(b) Reports on Form 8-K 1. Report on Form 8-K filed with the SEC on January 23, 1998 to report the acquisition of Strategic Legal Resources, LLC and the Form 8-K/A related thereto filed with the SEC on March 16, 1998. 2. Report on Form 8-K filed with the SEC on February 23, 1998 to report the financial results for the fiscal year ended December 31, 1997. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. STAFFMARK, INC. Date: May 7, 1998 /s/ CLETE T. BREWER ------------------------------------- Clete T. Brewer Chief Executive Officer and President Date: May 7, 1998 /s/ TERRY C. BELLORA ------------------------------------- Terry C. Bellora Chief Financial Officer
12 13 INDEX TO EXHIBITS 10.22 Amended and Restated Credit Agreement dated March 9, 1998, by and among StaffMark, Inc., the lenders named therein (the "Lenders") and Mercantile Bank National Association ("Mercantile"), as agent on behalf of the Lenders. 10.23 First Amendment to the Amended and Restated Credit Agreement dated March 16, 1998, by and among StaffMark, Inc., the Lenders and Mercantile, as agent on behalf of the Lenders. 10.24 StaffMark, Inc. Amended and Restated 1996 Stock Option Plan. 10.25 StaffMark, Inc. Employee Stock Purchase Plan, as amended. 10.26 StaffMark, Inc. Stock Election Plan for Non-Employee Directors. 10.27 StaffMark, Inc. Non-Qualified 401(k) Plan. 11.1 Statement re: computation of per share earnings, reference is made to Note 5 of the StaffMark, Inc. Consolidated Financial Statements contained in this Form 10-Q. 27.1 Financial Data Schedule for the three months ended March 31, 1998, submitted to the SEC in electronic format.
EX-10.22 2 AMENDED/RESTATED CREDIT AGREEMENT DATED 3/9/98 1 EXHIBIT 10.22 AMENDED AND RESTATED CREDIT AGREEMENT THIS AMENDED AND RESTATED CREDIT AGREEMENT (this "Agreement") is made and entered into as of this 9th day of March, 1998, by and between STAFFMARK, INC., a Delaware corporation (the "Borrower"), the undersigned lenders and any other lenders hereafter becoming a party to this Agreement (the "Lenders"), and MERCANTILE BANK NATIONAL ASSOCIATION, as successor by merger to Mercantile Bank of St. Louis National Association, a national banking association, as agent on behalf of Lenders (in such capacity, the "Agent"). WITNESSETH: WHEREAS, the Borrower and the Lenders heretofore entered into that certain Credit Agreement dated October 4, 1996, as amended by that certain First Amendment to Credit Agreement dated as of December 18, 1996, and that certain Second Amendment to Credit Agreement dated as of May 30, 1997 (as so amended, the "Credit Agreement"); and WHEREAS, the Borrower has applied for an additional $50,000,000.00 in loans; and WHEREAS, the Borrower, Agent and Lenders desire to amend and restate the Credit Agreement to, among other things, increase the aggregate principal amount of loans available thereunder from $100,000,000.00 to $150,000,000.00 and combine the revolving credit facility and reducing revolver credit facility into a single reducing revolver credit facility, upon the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby mutually amend and restate the Credit Agreement so that in its entirety it reads as follows: SECTION 1. TERM. The "Term" of this Agreement shall commence on the date hereof and shall end on April 1, 2003, unless earlier terminated pursuant to Section 3.11 or by acceleration or otherwise upon the occurrence of an Event of Default under this Agreement, in which case the Term hereof shall end on such earlier date. SECTION 2. DEFINITIONS. In addition to the terms defined elsewhere in this Agreement or in any Exhibit or Schedule hereto, when used in this Agreement, the following terms shall have the following meanings (such meanings shall be equally applicable to the singular and plural forms of the terms used, as the context requires): 2 Acceptable Acquisition shall mean any Acquisition of an ongoing business similar to or consistent with the Borrower's current line of business where each of the following are true: (a) such Acquisition has been: (i) in the event a corporation or its assets is the subject of such Acquisition, either (x) approved by the Board of Directors of the corporation which is the subject of such Acquisition or (y) recommended by such Board of Directors to the shareholders of such corporation, (ii) in the event a partnership is the subject of such Acquisition, approved by a majority (by percentage of voting power) of the partners of the partnership which is the subject of such Acquisition, (iii) in the event an organization or entity other than a corporation or partnership is the subject of such Acquisition, approved by a majority (by percentage of voting power) of the governing body, if any, or by a majority (by percentage of ownership interest) of the owners of the organization or entity which is the subject of such Acquisition or (iv) in the event the corporation, partnership or other organization or entity which is the subject of such Acquisition is in bankruptcy, approved by the bankruptcy court or another court of competent jurisdiction; (b) Borrower has given Agent and Lenders at least ten (10) Business Days prior written notice of such Acquisition if Lenders' consent is required under the succeeding clause (c) or three (3) Business Days prior written notice of such Acquisition if Lenders' consent is not required under the succeeding clause (c); (c) if (i) the sum of: (x) the principal amount of any Loan requested in connection with such Acquisition, plus (y) the then outstanding principal balance of all Loans, exceeds $50,000,000.00, and the portion of the purchase price for such Acquisition payable by Borrower in cash (whether payable at closing or at any time or times after closing on the acquisition, and if payable after closing and not determinable prior to closing, as reasonably estimated by Borrower) exceeds $16,000,000.00, or (ii) the portion of the purchase price for such acquisition payable by Borrower in cash exceeds the lesser of $30,000,000.00 or 15% of Shareholders' Equity, Borrower has obtained the prior written consent of the Required Lenders and the Agent; and (d) Borrower or a wholly-owned subsidiary of Borrower is the surviving entity; provided, however, that no Acquisition shall be an Acceptable Acquisition unless both as of the date of any such Acquisition and immediately following such Acquisition the Borrower is, and on a pro forma basis projects that it will continue to be, in compliance with the terms, covenants and conditions contained in this Agreement and the other Transaction Documents. Account Debtor shall mean any Person who is and/or may become obligated to the Borrower or any Guarantor under or on account of Accounts. Accounts shall mean all trade accounts receivable of the Borrower or any Guarantor which have been invoiced by the Borrower or such Guarantor. Acquisition shall mean any transaction or series of related transactions, consummated on or after the date of this Agreement, by which the Borrower or any of its Subsidiaries (a) acquires any going business or all or substantially all of the assets of any corporation, partnership or other organization or entity, whether through purchase of assets, merger or otherwise or (b) directly or indirectly acquires (in one transaction or as of the most recent transaction in a series of transactions) at least (i) a majority (in number of votes) of the stock and/or other securities of a corporation having ordinary voting power for the election of -2- 3 directors (other than stock and/or other securities having such power only by reason of the happening of a contingency), (ii) a majority (by percentage of voting power) of the outstanding partnership interests of a partnership or (iii) a majority of the ownership interests in any organization or entity other than a corporation or partnership. Agent shall mean Mercantile Bank National Association and its successors and assigns. Applicable Margin shall mean, with respect to each type of Loan or fee, the rate of interest shown in the applicable column below for the type of Loan or fee specified for each such column:
Level I Level II Level III Level IV Level V ------- -------- --------- -------- ------- IF RATIO OF CONSOLIDATED ADJUSTED TOTAL FUNDED => 3.00 < 3.00 < 2.00 < 1.50 < 1.00 DEBT TO CONSOLIDATED PROFORMA EBITDA IS => 2.00 => 1.50 => 1.00 LIBOR Loans 1.500% 1.250% 1.000% 0.875% 0.625% Prime Loans 0.000% 0.000% 0.000% 0.000% 0.000% Commitment Fee 0.2500% 0.2500% 0.2500% 0.1875% 0.1875%
On each January 1, April 1, July 1 and October 1 during the Term hereof, the ratio of Consolidated Adjusted Total Funded Debt to Consolidated Proforma EBITDA for the fiscal quarter preceding the fiscal quarter then ended shall be computed by Agent following delivery to Agent of the Borrower's consolidated financial statements for such fiscal quarter-end pursuant to Section 7.1(a)(ii) herein (i.e., for the fiscal quarter beginning April 1, 1998 using the ratio for the fiscal quarter ended December 31, 1997), and the Applicable Margins adjusted as of such subsequent January 1, April 1, July 1 and October 1 date in accordance with the levels set forth above. Such new Applicable Margins shall continue in effect until the next such adjustment, if any, on the following January 1, April 1, July 1 and October 1 in accordance with the preceding sentence. Each determination by Agent of the Applicable Margins shall be deemed prima facie correct. All such adjustments shall become effective as to LIBOR Loans outstanding on the first day of any quarter upon the expiration of the then current applicable Interest Periods for such Loans. Attorneys' Fees shall mean the reasonable value of the services (and costs, charges and expenses related thereto) of the attorneys (and all paralegals, secretaries, accountants and other staff employed by such attorneys) employed by Agent or any of the Lenders (including, without limitation, attorneys and paralegals who are employees of Agent or any of the Lenders or any affiliate of Agent or any of the Lenders) from time to time (i) in connection with the documentation, negotiation, execution, delivery, administration and enforcement of this Agreement and/or any of the other Transaction Documents, (ii) to represent Agent or any of the Lenders in any litigation, contest, dispute, suit or proceeding, or to commence, defend or intervene in any litigation, contest, dispute, suit or proceeding, or to file any petition, complaint, -3- 4 answer, motion or other pleading or to take any other action in or with respect to any litigation, contest, dispute, suit or proceeding (whether instituted by Agent, any of the Lenders, the Borrower or any other Person and whether in bankruptcy or otherwise) in any way or respect relating to any of the Collateral, any Third Party Collateral, this Agreement or any of the other Transaction Documents, the Borrower, any Subsidiary of the Borrower or any other Obligor, (iii) to protect, collect, lease, sell, take possession of or liquidate any of the Collateral or any Third Party Collateral, (iv) to attempt to enforce any security interest in or other Lien upon any of the Collateral or any Third Party Collateral or to give any advice with respect to such enforcement and (v) to enforce any of Agent's or any Lender's rights to collect any of the Borrower's Obligations. Borrower's Obligations shall mean any and all indebtedness (principal, interest, fees and other amounts), liabilities and obligations of the Borrower to Agent or any of the Lenders evidenced by or arising under the Notes, this Agreement, the Security Agreement, the Pledge Agreements, the Trademark Assignment, any of the other Transaction Documents or any other agreement, document or instrument heretofore, now or hereafter executed and delivered by the Borrower to Agent or any of the Lenders, in each case whether now existing or hereafter arising, absolute or contingent, joint and/or several, secured or unsecured, direct or indirect, expressed or implied in law, contractual or tortious, liquidated or unliquidated, at law or in equity, or otherwise, and whether created directly or acquired by Agent or any of the Lenders by assignment or otherwise, and any and all costs of collection and/or Attorneys' Fees incurred or to be incurred in connection therewith. Business Day shall mean any day except a Saturday, Sunday or legal holiday observed by any of the Lenders or by commercial banks in St. Louis, Missouri. Capital Expenditure shall mean any expenditure which, in accordance with generally accepted accounting principles consistently applied, is or should be capitalized on the balance sheet of the Person making the same. Capitalized Lease shall mean any lease which, in accordance with generally accepted accounting principles consistently applied, is or should be capitalized on the balance sheet of the lessee. Code shall mean the Internal Revenue Code of 1986, as amended, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of the Code shall be construed to also refer to any successor sections. Collateral shall mean any Property or assets of the Borrower which now or at any time hereafter secure the payment or performance of any of the Borrower's Obligations. Commitment Fee shall have the meaning ascribed thereto in Section 3.12. -4- 5 Consolidated Adjusted Total Funded Debt shall mean as of any fiscal quarter-end the sum of (a) the outstanding principal amount of all Loans on any such fiscal quarter-end date, plus (b) the undrawn face amount of all issued and outstanding Letters of Credit or any other letters of credit issued for the account of Borrower or its Consolidated Subsidiaries as of any such fiscal quarter-end date, plus (c) all of the Borrower's and its Consolidated Subsidiaries' other borrowed money Indebtedness outstanding on any such fiscal quarter-end date, including, without limitation, amounts due under any Capitalized Leases, plus (d) the cash portion of each Deferred Payment Obligation outstanding as of any such fiscal quarter-end date. Consolidated Fixed Charges shall mean the sum of all of the Borrower's and its Consolidated Subsidiaries' expenses under any operating leases within the specified period of any such calculation, plus interest paid during such specified period, including, without limitation, interest charges during such period under any Capitalized Leases, plus all income taxes paid during the specified period of such calculation, plus all payments of principal made on any Subordinated Debt as permitted to be paid pursuant to the terms of the subordination and standby agreement or intercreditor agreement made between Agent and the holder of any such Subordinated Debt, plus Capital Expenditures made during the specified period of any such calculation, excluding any expenditures for capital assets acquired by Borrower and its Consolidated Subsidiaries in an Acceptable Acquisition. The calculation of Consolidated Fixed Charges of Borrower and its Consolidated Subsidiaries shall include all such fixed charges described above for the specified period of any such calculation paid or made by any Subsidiary acquired by Borrower or its Consolidated Subsidiary during the specified period. Consolidated Proforma EBITDA Cash Flow shall mean on any date the Borrower's and its Consolidated Subsidiaries' net income (exclusive of any extraordinary gains or losses) plus interest expense, plus expenses for income taxes, plus depreciation, plus amortization, all for the twelve month period included in any such calculation and ending on the date of any such calculation, all as determined on a consolidated basis in accordance with generally accepted accounting principles, consistently applied. The calculation of Consolidated Proforma EBITDA Cash Flow of Borrower and its Consolidated Subsidiaries shall include all net income and other such amounts for the full twelve month period preceding the date of such calculation earned by or incurred or accrued by any Subsidiary acquired by Borrower or its Consolidated Subsidiaries during the preceding twelve months (and of any such Subsidiary contemplated for acquisition by Borrower or its Consolidated Subsidiaries with proceeds of a Reducing Revolver Loan for purposes of determining compliance with the requirements of Section 3.1(a)), but shall exclude from such calculation any officer compensation expenses or other expenses which Agent determines are non-recurring expenses paid or incurred by Borrower or a Consolidated Subsidiary in connection with any such Acquisition. Consolidated Proforma Operating Cash Flow shall mean on any date the Borrower's and its Consolidated Subsidiaries' net income (exclusive of any extraordinary gains or losses) plus interest expense, plus expenses for income taxes, plus depreciation, plus amortization, plus all expenses incurred by Borrower or any of its Consolidated Subsidiaries under any operating leases, all for the twelve month period included in any such calculation and ending on the date of any such calculation, all as determined on a consolidated basis in -5- 6 accordance with generally accepted accounting principles, consistently applied. The calculation of Consolidated Proforma Operating Cash Flow of Borrower and its Consolidated Subsidiaries shall include all net income and other such amounts for the full twelve month period preceding the date of such calculation earned by or incurred or accrued by any Subsidiary acquired by Borrower or its Consolidated Subsidiaries during the preceding twelve months, but shall exclude from such calculation any officer compensation expenses or other expenses which Agent determines are non-recurring expenses paid or incurred by Borrower or a Consolidated Subsidiary in connection with any such Acquisition. Consolidated Subsidiary shall mean with respect to any Person at any date, any Subsidiary or other entity the assets and liabilities of which are or should be consolidated with those of such Person in its consolidated financial statements as of such date in accordance with generally accepted accounting principles consistently applied. Conversion Notice shall have the meaning ascribed thereto in Section 3.2(b). Default shall mean any event or condition the occurrence of which would, with the lapse of time or the giving of notice or both, become an Event of Default as defined in Section 8 hereof. Deferred Payment Obligation shall mean the cash portion of the purchase price to be paid by Borrower or any of its Consolidated Subsidiaries in connection with any Acquisition at a time (whether in installments or a lump sum) after closing on the Acquisition. If the cash portion percentage of the purchase price to be paid by Borrower is to be determined by the payee at a time after closing, the cash portion shall be calculated as the maximum possible percentage. Further, if all or any portion of the amount of such deferred payment is contingent upon the performance of the company acquired during a period after closing, for purposes of this Agreement the portion of the Deferred Payment Obligation based on such future performance will be calculated based on such company's historical performance for an equal period of time ending on the beginning date of any historical period on which the purchase price is based and if the purchase price is not based on any historical performance, then ending on the closing date. Distribution in respect of any corporation shall mean (i) dividends or other distributions on capital stock of the corporation; and (ii) the redemption, repurchase or other acquisition of such stock or of warrants, rights or other options to purchase such stock (except when solely in exchange for such stock). Environmental Laws shall mean the Resource Conservation and Recovery Act of 1987, the Comprehensive Environmental Response, Compensation and Liability Act, any so-called "Superfund" or "Superlien" law, the Toxic Substances Control Act and any other federal, state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to or imposing liability or standards of conduct concerning any Hazardous Materials or any other hazardous, toxic or dangerous waste, substance or constituent or other substance, whether solid, liquid or gas, as now or at any time hereafter in effect. -6- 7 Environmental Lien shall have the meaning ascribed thereto in Section 7.1(k)(vi). ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA shall be construed to also refer to any successor sections. ERISA Affiliate shall mean any corporation, trade or business that is, along with the Borrower, a member of a controlled group of corporations or a controlled group of trades or businesses, as described in Sections 414(b) and 414(c), respectively, of the Code. Event of Default shall have the meaning ascribed thereto in Section 8. Guarantee by any Person shall mean any obligation, contingent or otherwise, of such Person guaranteeing any Indebtedness of any other Person or in any manner providing for the payment of any Indebtedness of any other Person or otherwise protecting the holder of such Indebtedness against loss (whether by agreement to keep-well, to purchase assets, goods, securities or services, or to take-or-pay or otherwise); provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb shall have a correlative meaning. Guarantor shall mean each Subsidiary of Borrower now or hereafter executing a Subsidiary Guaranty of all of Borrower's Obligations, and Guarantors shall mean any or all of them. Hazardous Materials shall mean any hazardous substance or pollutant or contaminant defined as such in (or for the purposes of) any Environmental Law and shall include, without limitation, petroleum, including crude oil or any fraction thereof which is liquid at standard conditions of temperature or pressure (60 degrees fahrenheit and 14.7 pounds per square inch absolute), any radioactive material, including, without limitation, any source, special nuclear or byproduct material as defined in 42 U.S.C. Section 2011 et seq., as amended or hereafter amended, and asbestos in any form or condition. Indebtedness of any Person shall mean and include, without duplication, any and all indebtedness (principal, interest, fees and other amounts), liabilities and obligations of such Person which in accordance with generally accepted accounting principles, consistently applied are or should be classified upon a balance sheet of such Person as liabilities of such Person, and in any event shall include all (i) obligations of such Person for borrowed money or which have been incurred in connection with the acquisition of Property, (ii) obligations secured by any Lien or other charge upon any Property owned by such Person, provided that if such Person has not assumed or become liable for the payment of such obligations, such obligations shall still be included in Indebtedness but the determination of the amount of Indebtedness evidenced by such obligations shall be limited to the book value of such Property, (iii) obligations created or arising under any conditional sale or other title retention agreement with respect to any Property acquired by such Person, provided that if the rights and remedies of the seller, lender or lessor in -7- 8 the event of default under such agreement are limited solely to repossession or sale of such Property, such obligations shall still be included in Indebtedness but the determination of the amount of Indebtedness evidenced by such obligations shall be limited to the book value of such Property, (iv) all Guarantees and other contingent indebtedness, liabilities and obligations of such Person whether or not reflected on the balance sheet of such Person and (v) all obligations of such Person as lessee under any Capitalized Lease. Interest Period shall mean with respect to each LIBOR Loan: (i) Initially, the period commencing on the date of such Loan and ending 1, 2, 3 or 6 months thereafter (or such other period agreed upon in writing by the Borrower and all of the Lenders), as the Borrower may elect pursuant to Section 3.2(a); and (ii) Thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Loan and ending 1, 2, 3 or 6 months thereafter (or such other period agreed upon in writing by the Borrower and all of the Lenders), as the Borrower may elect pursuant to Section 3.2(b); provided that: (iii) For purposes of determining an Interest Period, a month means a period starting on one day in a calendar month and ending on a numerically corresponding day in the next calendar month, provided, however, if an Interest Period begins on the last day of a month and if there is no numerically corresponding day in the month in which an Interest Period is to end, then such Interest Period shall end on the last Business Day of such month; (iv) Subject to clauses (v), (vi) and (vii) below, if any Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the immediately following Business Day, except that if such immediately following Business Day is in a different month, such Interest Period shall end on the immediately preceding Business Day; (v) No Interest Period with respect to any LIBOR Loan shall extend beyond the last day of the Term hereof; and (vi) Any Interest Period which includes a date on which a payment of principal is required to be made on the applicable Loan(s) shall end on such date. Inventory shall mean all inventory of the Borrower and the Guarantors. Letter of Credit and Letters of Credit shall have the meanings ascribed thereto in Section 3.3(a). -8- 9 Letter of Credit Application shall mean an application and agreement for irrevocable standby letter of credit in the form of Exhibit C attached hereto and incorporated herein by reference or an application and agreement for irrevocable commercial letter of credit in the form of Exhibit D attached hereto and incorporated herein by reference, and in either case executed by Borrower, as account party, and delivered to Agent pursuant to Section 3.3(a) as the same may from time to time be amended, modified, extended or renewed. Letter of Credit Commitment Fee shall have the meaning ascribed thereto in Section 3.3(c)(ii). Letter of Credit Issuance Fee shall have the meaning ascribed thereto in Section 3.3(c)(i). Lien shall mean any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on common law, statute or contract, including, without limitation, any security interest, mortgage, deed of trust, pledge, hypothecation, judgment lien or other lien or encumbrance of any kind or nature whatsoever, any conditional sale or trust receipt and any lease, consignment or bailment for security purposes. The term "Lien" shall include reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting Property. LIBOR Base Rate means, for an Interest Period, (a) the LIBOR Index Rate for such Interest Period, if such rate is available, and (b) if the LIBOR Index Rate cannot be determined, the arithmetic average of the rates of interest per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) at which deposits in U.S. dollars in immediately available funds are offered to Agent at 11:00 a.m. (St. Louis time) two (2) Business Days before the beginning of such Interest Period by two (2) or more major banks in the interbank eurodollar market selected by Agent for a period equal to such Interest Period and in an amount equal or comparable to the principal amount of the LIBOR Loan scheduled to be made available by Lenders. As used herein, "LIBOR Index Rate" means, for any Interest Period, the rate per annum (rounded upwards, if necessary, to the next higher one ten-thousandth of a percentage point) for deposits in U.S. Dollars for a period equal to such Interest Period, which appears on the Telerate Page 3750 as of 9:00 a.m. (St. Louis time) on the day two Business Days before the commencement of such Interest Period. LIBOR Loan shall mean any Loan bearing interest at the LIBOR Rate. LIBOR Rate shall mean (a) the quotient of (i) the LIBOR Base Rate divided by (ii) one minus the LIBOR Reserve Percentage, plus (b) the Applicable Margin. LIBOR Reserve Percentage shall mean for any day the reserve percentage (including any supplemental percentage applied on a marginal basis or any other reserve requirement having a similar effect), expressed as a decimal, which is in effect on the first day of -9- 10 the applicable Interest Period, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) under Regulation D (or any other applicable regulation of the Board of Governors (or any successor)) with respect to "Eurocurrency Liabilities." The LIBOR Rate shall be adjusted automatically on and as of the effective date of any change in the LIBOR Reserve Percentage. Loan shall mean each Reducing Revolver Loan, whether made as a Prime Loan or a LIBOR Loan, and Loans shall mean any or all of the foregoing. Loan Commitments shall mean the total of the Reducing Revolver Commitments of each of the Lenders. Multiemployer Plan shall mean a "multi-employer plan" as defined in Section 4001(a) (3) of ERISA which is maintained for employees of the Borrower, any ERISA Affiliate or any Subsidiary of the Borrower. Notes shall mean the Reducing Revolver Notes. Obligor shall mean the Borrower and each other Person who is or shall at any time hereafter become primarily or secondarily liable on any of the Borrower's Obligations or who grants Agent or any of the Lenders a Lien upon any of the Property or assets of such Person as security for any of the Borrower's Obligations. Occupational Safety and Health Laws shall mean the Occupational Safety and Health Act of 1970, as amended, and any other federal, state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to or imposing liability or standards of conduct concerning employee health and/or safety, as now or at any time hereafter in effect. PBGC shall mean the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. Pension Plan shall mean a "pension plan," as such term is defined in Section 3(2) of ERISA, which is established or maintained by the Borrower, any ERISA Affiliate or any Subsidiary of the Borrower, other than a Multiemployer Plan. Permitted Investments shall mean any investment by Borrower or any Subsidiary in any of the following: (a) Direct obligations of the United States of America or any instrumentality or agency thereof, the payment of which is unconditionally guaranteed by the United States of America or any instrumentality or agency thereof (all of which Investments must mature within twelve (12) months from the time of acquisition thereof); (b) Investments in readily marketable commercial paper which, at the time of acquisition thereof by Borrower or any Subsidiary, is rated A-1 or better by Standard & -10- 11 Poor's or P-1 or better by Moody's Investment Service and which matures within 270 days from the date of acquisition thereof, provided that the issuer of such commercial paper shall, at the time of acquisition of such commercial paper, have a senior long-term debt rating of at least A by Standard & Poor's and Moody's Investment Service; (c) Negotiable certificates of deposit or negotiable bankers acceptances issued by any of the Lenders or any other bank or trust company organized under the laws of the United States of America or any state thereof, which bank or trust company (other than the Lenders to which such restrictions shall not apply) is a member of both the Federal Deposit Insurance Corporation and the Federal Reserve System and is rated B or better by Thompson Bank Watch Service (all of which Permitted Investments must mature within twelve (12) months from the time of acquisition thereof); (d) Repurchase agreements, which shall be collateralized for at least 100% of face value, issued by any of the Lenders or any other bank or trust company organized under the laws of the United States or any state thereof, which bank or trust company (other than the Lenders to which such restrictions shall not apply) is a member of both the Federal Deposit Insurance Corporation and the Federal Reserve System and is rated B or better by Thompson Bank Watch Service (all of which Permitted Investments must mature within twelve (12) months from the time of acquisition thereof); (e) Investments in mutual funds the investments of which are limited to domestic securities; and (f) Investments in Acceptable Acquisitions. Person shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, institution, entity or government (whether national, federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). Pledge Agreements shall mean those certain General Pledge and Security Agreements executed and to be executed by Borrower and delivered to Agent for the benefit of each of the Lenders, pledging all of the issued and outstanding capital stock of each of Borrower's Subsidiaries, together with all collateral schedules, stock powers, original stock certificates and other agreements to be delivered in connection therewith pursuant to Section 5.3, all as the same may be from time to time amended. Prime Loan shall mean a Loan bearing interest at the Prime Rate plus the Applicable Margin. Prime Rate shall mean the interest rate announced from time to time by Agent as its "prime rate" on commercial loans (which rate shall fluctuate as and when said prime rate shall change). -11- 12 Pro Rata Share shall mean, with respect to each Lender, such Lender's percentage of the aggregate amount of Loans then outstanding, determined by dividing the aggregate principal amount of all Loans of such Lender then outstanding by the aggregate amount of all Loans of all Lenders then outstanding, or, if no Loans are then outstanding, such Lender's percentage of the total Loan Commitments of all of the Lenders, determined by dividing the sum of such Lenders' Loan Commitment by the aggregate sum of all Loan Commitments of all of the Lenders. Property shall mean any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. Properties shall mean the plural of Property. For purposes of this Agreement, the Borrower and each Subsidiary of the Borrower shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement, financing lease or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person for security purposes. Reducing Revolver Commitment shall mean, subject to termination or reduction as set forth in Section 3.11 and subject to quarterly reductions required by Section 3.1(a), for each Lender the amount set forth as the Reducing Revolver Commitment of such Lender next to its name on the signature pages hereof or on the signature pages of any subsequent Assignment Agreement to which such Lender is a party. Reducing Revolver Loan shall have the meaning ascribed thereto in Section 3.1. Reducing Revolver Notes shall mean each of the Reducing Revolver Notes of the Borrower to be executed and delivered to each of the Lenders pursuant to Section 3.1, as the same may from time to time be amended, modified, extended or renewed. Related Party shall mean any Person (i) which directly or indirectly through one or more intermediaries controls, or is controlled by or is under common control with, the Borrower or any Subsidiary of the Borrower, (ii) which beneficially owns or holds ten percent (10%) or more of the equity interest of the Borrower, (iii) ten percent (10%) or more of the equity interest of which is beneficially owned or held by the Borrower or a Subsidiary of the Borrower, or (iv) who is a director, officer or employee of the Borrower or any Subsidiary of the Borrower. The term "control" shall mean the possession, directly or indirectly, of the power to vote ten percent (10%) or more of the capital stock of any Person or the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Reportable Event shall have the meaning given to such term in ERISA. Required Lenders shall mean at any time Lenders having 67% of the aggregate amount of Loans then outstanding or, if no Loans are then outstanding, 67% of the total Loan Commitments of all of the Lenders. -12- 13 Security Agreement shall mean the Security Agreement dated October 4, 1996, executed by Borrower and delivered to Agent for the benefit of each of the Lenders pursuant to Section 5.1, as the same may from time to time be amended. Shareholders Equity shall mean on any date the total assets minus total liabilities of Borrower and its Subsidiaries, all determined on a consolidated basis in accordance with generally accepted accounting principles, consistently applied. Subordinated Debt shall mean any borrowed money Indebtedness of Borrower which has been duly subordinated by the holder thereof to all of Borrower's Obligations to the Lenders and Agent pursuant to a subordination and standby agreement or intercreditor agreement in form and substance satisfactory to the Agent and the Required Lenders. Subsidiary shall mean, with respect to any Person, any corporation of which fifty percent (50%) or more of the issued and outstanding capital stock entitled to vote for the election of directors (other than by reason of default in the payment of dividends) is at the time owned directly or indirectly by such Person. Subsidiary Guaranties shall mean those certain guaranties of Borrower's Obligations executed respectively by Borrower's Subsidiaries in existence as of the date hereof and the guaranties of any subsequently created or acquired Subsidiary of Borrower executed and delivered to Agent hereafter pursuant to Section 4.2 or Section 7.2(e), all as the same may from time to time be amended. Subsidiary Pledge Agreements shall mean those certain general pledge and security agreements executed respectively by Borrower's Subsidiaries in existence as of the date hereof and the general pledge and security agreements of any subsequently created or acquired Subsidiary of Borrower executed and delivered to Agent hereafter pursuant to Section 4.2 or Section 7.2(e), all as the same may from time to time be amended. Subsidiary Security Agreements shall mean those certain security agreements executed respectively by Borrower's Subsidiaries in existence as of the date hereof and delivered to Agent for the benefit of each of the Lenders and the Subsidiary Security Agreements executed by any Subsidiary of Borrower created or acquired subsequent to the date of this Agreement, which Subsidiary Security Agreement shall be delivered pursuant to Section 4.2 or Section 7.2(e), all as the same may from time to time be amended. Term shall have the meaning ascribed thereto in Section 1. Third Party Collateral shall mean any Property or assets of any Obligor other than the Borrower which now or at any time hereafter secure the payment or performance of any of the Borrower's Obligations. Total Reducing Revolver Commitment shall have the meaning ascribed thereto in Section 3.1. -13- 14 Trademark Assignment shall mean the Trademark Collateral Assignment and Security Agreement executed by Borrower and delivered to Agent for the benefit of each of the Lenders pursuant to Section 5.2, as the same may from time to time be amended. Transaction Documents shall mean this Agreement, the Notes, the Security Agreement, the Trademark Assignment, the Pledge Agreements, any Letter of Credit Application, the Subsidiary Guaranties, the Subsidiary Security Agreements, the Subsidiary Pledge Agreements and all other agreements, documents and instruments heretofore, now or hereafter delivered to Agent or any of the Lenders with respect to or in connection with or pursuant to this Agreement, any Loans made or Letters of Credit issued hereunder or any other of the Borrower's Obligations, and executed by or on behalf of the Borrower or any of its Subsidiaries, all as the same may from time to time be amended, modified, extended or renewed. SECTION 3. THE LOANS. 3.1 Reducing Revolver Commitment of Lenders. (a) Subject to the terms and conditions hereof, during the Term of this Agreement, each Lender hereby severally agrees to make such loans (individually, a "Reducing Revolver Loan," and collectively, the "Reducing Revolver Loans"), to the Borrower as the Borrower may from time to time request pursuant to Section 3.2(a). The aggregate principal amount of Reducing Revolver Loans which Lenders, cumulatively, shall be required to have outstanding hereunder at any one time, plus the undrawn face amount of Letters of Credit issued by Agent and then outstanding under Section 3.3, shall not exceed the lesser of (i) One Hundred Fifty Million Dollars ($150,000,000.00) (subject to reduction as provided below, the "Total Reducing Revolver Commitment"), or (ii) four hundred percent (400%), (and at all times after March 31, 1999, three hundred fifty percent (350%)) of the amount of Borrower's Consolidated Proforma EBITDA Cash Flow determined as of the most recent fiscal quarter-end. The amount each Lender shall be required to have outstanding hereunder as Reducing Revolver Loans plus their undivided Pro Rata Share participation interest in each Letter of Credit issued by Agent under Section 3.3, shall not exceed, in the aggregate at any one time outstanding, the lesser of (x) the amount of such Lender's Reducing Revolver Commitment, or (y) such Lender's Pro Rata Share multiplied times an amount equal to four hundred percent (400%) (and at all times after March 31, 1999, three hundred fifty percent (350%)) of Borrower's Consolidated Proforma EBITDA Cash Flow determined as of the most recent fiscal quarter-end. Each Reducing Revolver Loan under this Section 3.1 shall be made by the Lenders ratably in proportion to their respective Reducing Revolver Commitments. The Reducing Revolver Loans shall be evidenced by the Reducing Revolver Notes of the Borrower, each dated the date hereof and payable by the Borrower to the respective orders of each of the Lenders in the aggregate original principal amount of One Hundred Fifty Million Dollars ($150,000,000.00) and otherwise in the form attached hereto as Exhibit A and incorporated herein by reference (as the same may from time to time be amended, restated, modified, extended or renewed, the "Reducing Revolver Notes"). The Reducing Revolver Notes shall mature on April 1, 2003, unless earlier terminated by acceleration or otherwise upon the occurrence of an Event of Default under this Agreement. -14- 15 Subject to any such earlier maturity by reason of acceleration or otherwise and in addition to any voluntary reduction requested by Borrower pursuant to Section 3.11, the Total Reducing Revolver Commitment of the Lenders shall be reduced by the amount of Five Million Dollars ($5,000,000.00) on the first day of each fiscal quarter commencing with the first such reduction on January 1, 2000 and continuing on the first day of each fiscal quarter thereafter during the Term hereof, with such reductions being applied to the respective Reducing Revolver Commitments of the Lenders in accordance with their Pro Rata Shares thereof. In the event any such quarterly reduction in the Total Reducing Revolver Commitment shall cause the amount of the Total Reducing Revolver Commitment to be decreased below the then outstanding principal amount of all Reducing Revolver Loans to Borrower plus the undrawn face amount of all outstanding Letters of Credit, or in the event any reduction in Borrower's most recent quarter-end Consolidated Proforma EBITDA Cash Flow shall cause the aggregate principal amount of the Reducing Revolver Loans plus the undrawn face amount of all outstanding Letters of Credit to exceed four hundred percent (400%) (and at all times after March 31, 1999, three hundred fifty percent (350%)) of such most recent quarter-end Consolidated Proforma EBITDA Cash Flow, Borrower agrees to pay to Agent for distribution to the Lenders in accordance with their respective Pro Rata Shares of the Reducing Revolver Commitments, the amount by which the aggregate outstanding Reducing Revolver Loans plus the undrawn face amount of all outstanding Letters of Credit then exceeds the lesser of the then available Total Reducing Revolver Commitment or four hundred percent (400%) (and at all times after March 31, 1999, three hundred fifty percent (350%)) of Borrower's most recent quarter-end Consolidated Proforma EBITDA Cash Flow. If the undrawn face amount of all Letters of Credit still exceeds the lesser of the then current Total Reducing Revolver Commitment or four hundred percent (400%) (and at all times after March 31, 1999, three hundred fifty percent (350%)) of the most recent quarter-end Consolidated Proforma EBITDA Cash Flow after repayment in full of all Reducing Revolver Loans under the preceding sentence, Borrower agrees to provide cash collateral in form and substance acceptable to Agent in an amount sufficient to cover such shortfall. Subject to the terms and conditions of this Agreement, the Borrower may borrow, repay and reborrow the amounts available under this Section 3.1. (b) Each Lender shall record in its books and records, and prior to any transfer of its Reducing Revolver Note shall endorse on the schedules forming a part thereof, appropriate notations to evidence the date and amount of each Reducing Revolver Loan made by it during the Term hereof, whether such Reducing Revolver Loan is then a Prime Loan or a LIBOR Loan, and the date and amount of each payment of principal made by Borrower with respect thereto. Each Lender is hereby irrevocably authorized by Borrower so to endorse its Reducing Revolver Note and to attach to and make a part of any such Reducing Revolver Note a continuation of any such schedule as and when required; provided, however that the obligation of Borrower to repay each Reducing Revolver Loan made hereunder shall be absolute and unconditional, notwithstanding any failure of any Lender to endorse or any mistake by any Lender in connection with endorsement on the schedules attached to their respective Reducing Revolver Notes. The books and records of each Lender (including, without limitation, the schedules attached to the Reducing Revolver Notes) showing the account between such Lender and Borrower shall be admissible in evidence in any action or proceeding and shall constitute prima facie proof of the items therein set forth. -15- 16 3.2 Procedure for Borrowing. (a) Reducing Revolver Loan Advances. Subject to the terms and conditions hereof, Lenders shall cause the Reducing Revolver Loans to be made to the Borrower at any time and from time to time during the Term hereof upon Borrower's application to Agent in writing signed by the authorized representative of the Borrower and received by Agent not later than 11:00 a.m. (St. Louis time) three (3) Business Days prior to the date on which such Reducing Revolver Loan is being borrowed, specifying: (i) if the proceeds of the Reducing Revolver Loan will be used to finance an Acceptable Acquisition, (A) the target business to be acquired by Borrower in an Acceptable Acquisition with the proceeds of such Reducing Revolver Loan (which business must be in a similar line of business to Borrower and its Subsidiaries), (B) the affidavit of any one of the President, Chief Financial Officer, Chief Operating Officer, or any Executive Vice President of Borrower attesting that the Acceptable Acquisition contemplated will not cause Borrower or any of its Subsidiaries to violate any provision of the Transaction Documents and including Borrower's financial projections showing that post-acquisition Borrower and its Subsidiaries will be in proforma compliance with the financial covenants set forth in Section 7.1(i) of this Agreement, (C) the desired amount of the new Reducing Revolver Loan, which shall not exceed the cash purchase price for the target business, and (D) the date on which the Loan proceeds are to be made available to the Borrower, which shall be a Business Day, and (ii) if the proceeds of the Reducing Revolver Loan will be used for any purpose permitted by this Agreement other than to finance an Acceptable Acquisition, (A) the desired amount of the new Reducing Revolver Loan and (B) the date on which the Loan proceeds are to be made available to Borrower, which shall be a Business Day. In addition, not later than two (2) Business Days prior to the date of funding of any such requested Reducing Revolver Loan, Borrower shall further notify Agent in writing of: (y) the applicable interest rate option being selected, and (z) if a LIBOR Loan is requested, the Interest Period, which in no event shall extend beyond the last day of the Term hereof. Each application for a Reducing Revolver Loan hereunder the proceeds of which will be used to finance an Acceptable Acquisition shall include a copy of the letter of interest, purchase agreement or other documents signed by and between Borrower and the target business disclosing the terms of the Acceptable Acquisition. Reducing Revolver Loans made hereunder to fund Acceptable Acquisitions shall not require the prior written consent of the Agent or the Required Lenders except as required in subpart (c) of the definition of Acceptable Acquisition. A Reducing Revolver Loan requested to fund any Acceptable Acquisition shall be funded in a single advance. Upon receipt of an application for a Reducing Revolver Loan, the Agent shall deliver a copy of such information to each Lender on the date of receipt and shall notify each Lender of such Lender's Pro Rata Share of such new Reducing Revolver Loan. An application for a Reducing Revolver Loan, once issued, shall not be revocable by the Borrower. Not later than 2:00 p.m. (St. Louis time) on the date of each new Reducing Revolver Loan, each Lender shall make available its Pro Rata Share of such Reducing Revolver Loan, in federal or other funds immediately available in St. Louis, Missouri, to the Agent at its address specified in or pursuant -16- 17 to Section 10.7. Agent shall not be required to make any amount available to Borrower hereunder except to the extent it shall have received such amounts from the Lenders as set forth herein, provided, however, that unless the Agent shall have been notified by a Lender prior to the date a Reducing Revolver Loan is to be made hereunder that such Lender does not intend to make its Pro Rata Share of such Reducing Revolver Loan available to the Agent, the Agent may assume that such Lender has made such Pro Rata Share available to the Agent on such date, and the Agent may in reliance upon such assumption make available to the Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Agent by such Lender and the Agent has made such amount available to the Borrower, the Agent shall be entitled to receive such amount from such Lender forthwith upon its demand, together with interest thereon in respect of each day during the period commencing on the date such amount was made available to the Borrower and ending on but excluding the date the Agent recovers such amount from the Lender at a rate per annum equal to the effective rate charged to the Agent for overnight federal funds transactions with member banks of the Federal Reserve System for each day as determined by the Agent (or in the case of a day which is not a Business Day, then for the preceding day). Subject to the terms and conditions hereof, provided that Agent has received a timely application from Borrower as required in this Section 3.2(a), Agent shall (unless Agent determines that any applicable condition specified in Sections 4.1 or 4.2 has not been satisfied) make the funds so received from the Lenders available to Borrower by wiring or otherwise transferring the proceeds of such Loan not later than 2:30 p.m. (St. Louis time) on the Business Day specified by Borrower in its application in accordance with any instructions for such disbursement received from the Borrower. The Borrower hereby authorizes Agent and Lenders to rely on telephonic, telegraphic, telecopy, telex or written instructions of any Person identifying himself or herself as a Person authorized to request a Loan or to make a repayment hereunder, and on any signature which Agent or any of the Lenders believes to be genuine, and the Borrower shall be bound thereby in the same manner as if such Person were actually authorized or such signature were genuine. Borrower also hereby agrees to indemnify Agent and Lenders and hold Agent and Lenders harmless from and against any and all claims, demands, damages, liabilities, losses, costs and expenses (including, without limitation, attorneys' fees and expenses) relating to or arising out of or in connection with the acceptance of instructions for making Reducing Revolver Loans or making repayments hereunder unless such acceptance results from the gross negligence or willful misconduct of the Agent or a Lender as determined by a court of competent jurisdiction. (b) Interest Rate Conversions. Subject to the terms and conditions hereof, Lenders shall permit the Borrower to convert outstanding Reducing Revolver Loans from a Prime Loan to a LIBOR Loan or from a LIBOR Loan to a Prime Loan, and Lenders shall permit the Borrower to request a new Interest Period for any existing LIBOR Loan at the end of its then current Interest Period, upon timely notice ("Conversion Notice") to Agent, in writing signed by the authorized representative of the Borrower (including any such notice by facsimile transmission) specifying: (1) the amount of the outstanding Reducing Revolver Loan being converted to a new interest rate basis, or the amount of the LIBOR Loan being continued as a LIBOR Loan for a new Interest Period, (2) the applicable interest rate option being selected, (3) if a LIBOR Loan is requested, the Interest Period, which in no event shall extend beyond the last day of the Term hereof, and (4) the effective date, which shall be a Business Day, and if -17- 18 pertaining to an existing LIBOR Loan, shall also be the last day of the then current Interest Period. Each Conversion Notice must be received by Agent not later than 11:00 a.m. (St. Louis time) on the Business Day on which a conversion to a Prime Loan is to be made, and not later than 11:00 a.m. (St. Louis time) on the second Business Day prior to the Business Day on which a conversion to a LIBOR Loan is to be made. Each Conversion Notice for extension of an existing LIBOR Loan for a new Interest Period must be received by Agent not later than 11:00 a.m. (St. Louis time) on the second Business Day prior to the last day of the then current Interest Period. Upon receipt of a Conversion Notice given to it, the Agent shall notify each Lender by 12:00 noon (St. Louis time) on the date of receipt of such Conversion Notice by the Agent of the contents thereof. Unless the Borrower shall have otherwise requested Agent to notify the Lenders to continue an existing LIBOR Loan for a new Interest Period in a timely Conversion Notice, upon the expiration of the current Interest Period any LIBOR Loan made in relation to such Interest Period and then outstanding shall bear interest at the Prime Rate plus Applicable Margin from and after the expiration of such Interest Period unless and until subsequently converted in accordance with the terms of this Section 3.2(b). A Conversion Notice shall not be revocable by the Borrower. Subject to the terms and conditions hereof, provided that Agent has received the timely Conversion Notice, Lenders shall (unless Agent determines that any applicable condition specified in Section 4 has not been satisfied) convert the interest rate on the portion of the outstanding Reducing Revolver Loan, as directed by the Borrower in the Conversion Notice, or Lenders shall extend any LIBOR Loan for a new Interest Period as directed by the Borrower in the Conversion Notice, at 2:30 p.m. (St. Louis time) on the Business Day specified in said Conversion Notice; provided, however, that notwithstanding the foregoing, in addition to and without limiting the rights and remedies of the Agent and the Lenders under Section 8 hereof, so long as any Default or Event of Default under this Agreement has occurred and is continuing, Borrower shall not be permitted to renew any LIBOR Loan as a LIBOR Loan or to convert any Prime Loan into a LIBOR Loan. The Borrower hereby authorizes Agent and the Lenders to rely on telephonic, telegraphic, telecopy, telex or written instructions of any person identifying himself or herself as a Person authorized to request a conversion of a Reducing Revolver Loan, or to continue a LIBOR Loan hereunder, and on any signature which Agent or any of the Lenders believe to be genuine, and the Borrower shall be bound thereby in the same manner as if such Person were actually authorized or such signature were genuine. The Borrower also hereby agrees to indemnify Agent and the Lenders and hold Agent and the Lenders harmless from and against any and all claims, demands, damages, liabilities, losses, costs and expenses (including, without limitation, attorneys' fees and expenses) relating to or arising out of or in connection with the acceptance of instructions for converting Reducing Revolver Loans to a new interest rate basis or continuing LIBOR Loans hereunder unless such acceptance results from the gross negligence or willful misconduct of the Agent or a Lender as determined by a court of competent jurisdiction. A Conversion Notice shall not be required in connection with a Prime Loan pursuant to Section 3.6, 3.7 or 3.8. 3.3 Letters of Credit. (a) Subject to the terms and conditions of this Agreement, during the Term of this Agreement, and so long as no Default or Event of Default under this Agreement has occurred and is continuing (provided, however, that Agent shall have no liability to any of the -18- 19 Lenders for issuing a Letter of Credit after the occurrence of any Default or Event of Default under this Agreement unless Agent has previously received notice in writing to Agent by Borrower or any of the other Lenders of the occurrence of such Default or Event of Default), Agent hereby agrees to issue irrevocable standby and commercial letters of credit for the account of Borrower (individually, a "Letter of Credit" and collectively, the "Letters of Credit") in an amount and for the term specifically requested by Borrower by application in writing to Agent in the form of Exhibit C in the case of a standby Letter of Credit or in the form of Exhibit D in the case of a commercial Letter of Credit, each as attached hereto and incorporated herein by reference (a "Letter of Credit Application") at least three (3) Business Days prior to the requested issuance thereof; provided, however, that: (i) Borrower shall have executed and delivered to Agent a Letter of Credit Application with respect to such Letter of Credit; (ii) the term of any such Letter of Credit shall not extend beyond the earlier of (A) the last day of the Term hereof, or (B) three hundred sixty-five (365) days from the issuance thereof, provided, however, that any such Letter of Credit may be renewable on terms satisfactory to the Agent; (iii) the aggregate undrawn face amount of all outstanding Letters of Credit shall not at any one time exceed Ten Million Dollars ($10,000,000.00) and the aggregate undrawn face amount of all outstanding Letters of Credit plus the outstanding principal amount of all Reducing Revolver Loans shall not at any one time exceed the lesser of (a) four hundred percent (400%) of Borrower's consolidated Proforma EBITDA Cash Flow determined as of the most recent fiscal quarter-end or (b) the Total Reducing Revolver Commitment; and (iv) the text of any such Letter of Credit is provided to Agent no less than three (3) Business Days prior to the requested issuance date, which text must be acceptable to Agent in its sole and absolute discretion. (b) The payment of drafts under each Letter of Credit shall be made in accordance with the terms thereof and, in that connection, Agent shall be entitled to honor any drafts and accept any documents presented to it by the beneficiary of such Letter of Credit in accordance with the terms of such Letter of Credit and believed by Agent to be genuine. Agent shall not have any duty to inquire as to the accuracy or authenticity of any draft or other drawing document that may be presented to it other than the duties contemplated by the applicable Letter of Credit Application. If Agent shall have received documents that in its judgment constitute all of the documents that are required to be presented before payment or acceptance of a draft under a Letter of Credit, it shall be entitled to pay such draft provided such documents conform on their face to the requirements of such Letter of Credit. (c) In the event of any payment by Agent of a draft presented or accepted under a Letter of Credit, Borrower agrees to pay to Agent in immediately available -19- 20 funds at the time of such drawing an amount equal to the sum of such drawing plus Agent's negotiation, processing and other fees related thereto. Borrower hereby authorizes Agent to charge or cause to be charged Borrower's bank accounts at Agent to the extent there are balances of immediately available funds therein, in an amount equal to the sum of such drawing plus Agent's negotiation, processing and other fees related thereto, and Borrower agrees to pay the amount of any such drawing (and/or Agent's negotiation, processing and other fees related thereto) not so charged prior to the close of business of Agent on the day of such drawing. In the event any payment under a Letter of Credit is made by Agent prior to receipt of payment from Borrower, such payment by Agent shall constitute a request by Borrower for a Reducing Revolver Loan as a Prime Loan under Section 3.1(a) above. (i) Borrower shall also pay to Agent, for its own account, with respect to each Letter of Credit, a nonrefundable issuance fee in the amount of One Hundred Twenty-Five Dollars ($125.00) (the "Letter of Credit Issuance Fee"), which Letter of Credit Issuance Fee shall be due and payable on the date of issuance of each Letter of Credit, and such other fees as Agent may from time to time customarily charge in accordance with Agent's published schedule of fees in effect from time to time, which fees shall be due and payable on demand by Agent; and (ii) Borrower shall pay to Agent for the ratable account of the Lenders with respect to each Letter of Credit for the period during which such Letter of Credit is outstanding, a nonrefundable Letter of Credit Commitment Fee in an amount per annum equal to the LIBOR Margin in effect for each such fiscal quarter (calculated on an actual day, 360-day year basis) times the face amount (taking into account any scheduled increases or decreases therein during the fiscal quarter in question) of each Letter of Credit issued hereunder ("Letter of Credit Commitment Fee"), which Letter of Credit Commitment Fee shall be due and payable on the date of issuance for each Letter of Credit issued by Agent hereafter, in each case prorated for the remainder of the then current quarter, and such Letter of Credit Commitment Fee shall also be payable thereafter for all outstanding Letters of Credit quarterly in advance on each April 1, July 1, October 1, and January 1 during the Term hereof. (d) Upon the issuance of a Letter of Credit by Agent, an undivided participation interest therein (including, without limitation, an undivided participation interest in the reimbursement risk relating to such Letter of Credit and in all payments and Reducing Revolver Loans made in connection with such Letter of Credit) shall automatically be granted by Agent to and accepted by each of the other Lenders in an amount based on each such other Lender's Pro Rata Share of the face amount of such Letter of Credit, which participation shall be evidenced by a single Letter of Credit Participation Certificate executed by Agent in favor of such Lender in the form attached hereto as Exhibit E and incorporated herein by reference. Agent agrees to provide each Lender with a copy of each Letter of Credit issued hereunder. If Agent shall make payment on any draft presented or accepted under a Letter of Credit, Agent shall give notice of such payment to the other Lenders, and each of the other Lenders hereby -20- 21 authorizes and requests Agent to advance for their respective accounts, pursuant to the terms hereof, their respective shares of any such payment based upon their respective Pro Rata Shares. If a Default has occurred hereunder and if such drawing is not paid by Borrower in immediately available funds prior to the close of business of Agent on the date of such drawing, Agent shall promptly so notify the other Lenders and each of the other Lenders agrees to immediately reimburse Agent in immediately available funds for its Pro Rata Share of the amount of such drawing, plus interest calculated on its Pro Rata Share of such amount at a rate per annum equal to the effective rate charged to the Agent for overnight federal funds transactions with member banks of the Federal Reserve System calculated from the date of such payment by Agent to but excluding the date of reimbursement by such other Lender and on an actual-day, 360-day year basis. Each of the other Lenders will be entitled to its Pro Rata Share of any Letter of Credit Commitment Fees paid by Borrower, but such other Lenders shall have no right to share in any Letter of Credit Issuance Fees or any other fees paid by Borrower to Agent in connection with any of the Letters of Credit. (e) Notwithstanding any provision contained in this Agreement or any of the Letter of Credit Applications to the contrary, upon the occurrence of any Event of Default under this Agreement, at Agent's option and without demand or further notice to Borrower, an amount equal to the aggregate undrawn face amount of all Letter(s) of Credit then outstanding shall be deemed (as between Agent and Borrower) to have been paid or disbursed by Agent (notwithstanding that such amounts may not in fact have been so paid or disbursed by Agent), and which amount shall be immediately due and payable. In lieu of the foregoing, at the election of the Required Lenders upon the occurrence of any Event of Default under this Agreement, Borrower shall, upon the Required Lenders' demand, deliver to Agent cash, or other collateral acceptable to the Required Lenders in their sole and absolute discretion, having a value, as determined by the Required Lenders, at least equal to the aggregate undrawn face amount of all outstanding Letters of Credit. Any such collateral and/or any amounts received by Agent for such Letters of Credit shall be held by Agent in a separate account at Agent appropriately designated as a cash collateral account in relation to this Agreement and the Letters of Credit and retained by Agent as collateral security for the payment of Borrower's Obligations hereunder. Cash amounts delivered to Agent pursuant to the foregoing requirements of this Section shall be invested, at the request and for the account of Borrower, in investments of a type and nature and with a term acceptable to the Required Lenders. Such amounts, including in the case of cash amounts invested in the manner set forth above, any interest realized thereon, may be applied to reimburse Agent and/or any of the Lenders for drawings or payments under or pursuant to the Letters of Credit which Agent has paid, or if no such reimbursement is required to the payment of such other of Borrower's Obligations as the Required Lenders shall determine. Any amounts remaining in any cash collateral account established pursuant to this Section after the payment in full of all of Borrower's Obligations and the expiration or cancellation of all of the Letters of Credit shall be returned to Borrower (after deduction of Agent's expenses, if any). 3.4 Interest Rates and Payments. (a) Each Reducing Revolver Loan shall bear interest prior to maturity at a rate per annum equal to such of the following as the Borrower, at its option, shall select in -21- 22 accordance with Section 3.2: (i) the Prime Rate plus Applicable Margin, which rate shall fluctuate as and when said Prime Rate or said Applicable Margin shall change, or (ii) the LIBOR Rate plus Applicable Margin, determined in the case of LIBOR Loans as of the date of the commencement of the applicable Interest Period. Accrued interest on all Prime Loans shall be payable quarterly in arrears on the first day of each calendar quarter, commencing on the first such date after such Loan is made. Accrued interest on all LIBOR Loans shall be payable in arrears on the last day of the Interest Period applicable to each such LIBOR Loan, and if any such Interest Period exceeds three months, all accrued and unpaid interest shall be due and payable on the date three months following the commencement of such Interest Period as well. In addition, all accrued interest on all Loans shall be payable on the last day of the Term hereof, whether by reason of acceleration or otherwise. (b) After the occurrence of an Event of Default, the principal balance of and, to the extent permitted by law, any overdue interest on any Prime Loan shall bear interest, payable on demand, for each day until paid, at a rate per annum equal to Three and One-Fourth Percent (3.25%) over and above the Prime Rate, fluctuating as and when said Prime Rate shall change. After the occurrence of an Event of Default, the principal balance of and, to the extent permitted by law, any overdue interest on any LIBOR Loan shall bear interest, payable on demand, for each day during the applicable Interest Period until paid, at a rate per annum equal to the sum of Two Percent (2.00%) plus the LIBOR Rate plus Applicable Margin for such LIBOR Loan, and after the expiration of such Interest Period, such Loan shall thereafter bear interest at the default rate applicable to Prime Loans under the preceding sentence. From and after the maturity of the Notes, whether by reason of acceleration or otherwise, the unpaid principal balance of each Loan shall bear interest until paid, payable on demand, at a rate per annum equal to Three and One-Fourth Percent (3.25%) over and above the Prime Rate, fluctuating as aforesaid. (c) Interest shall be computed with respect to all Loans on an actual day, 360-day year basis. Each LIBOR Loan shall be for a principal amount of Five Hundred Thousand Dollars ($500,000.00) or any larger multiple of Two Hundred Fifty Thousand Dollars ($250,000.00). The Borrower shall be permitted to have no more than twelve (12) LIBOR Loans outstanding at any one time. (d) The Agent shall determine each interest rate applicable to the Loans hereunder as selected by Borrower pursuant to Section 3.2. The Agent shall give prompt notice to Borrower and the Lenders by telephone, telecopy, telex or cable of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. 3.5 Prepayment; Funding Losses. The Borrower shall be privileged to prepay all at any time or any portion from time to time of the unpaid principal balance of any Loan, provided, however, that any LIBOR Loan may be prepaid only at the expiration of the applicable Interest Period. If the Borrower makes any payment with respect to any LIBOR Loan on any day other than the last day -22- 23 of the Interest Period applicable thereto (whether by reason of acceleration, a required prepayment under this Agreement or otherwise), or if the Borrower converts any LIBOR Loan or portion thereof to a Prime Loan on any day other than the last day of the Interest Period applicable thereto (whether by reason of Section 3.7, 3.8 or otherwise), or if the Borrower fails to borrow any LIBOR Loan after a request for such a Loan has been given to Agent pursuant hereto, the Borrower shall reimburse any of the Lenders on demand for any resulting losses and expenses incurred by any such Lender, including, without limitation, any losses incurred in obtaining, liquidating or employing deposits from third parties, including loss of margin for the period after such payment or conversion, provided that such Lender shall have delivered to the Borrower a certificate, with supporting calculations, as to the amount of such losses and expenses, which certificate shall be conclusive in the absence of manifest error. All prepayments shall be applied solely to the payment of principal. 3.6 Basis for Determining Interest Rate Inadequate or Unfair. If with respect to any Interest Period: (a) Deposits in dollars (in the applicable amounts) are not being offered to any Lender in the relevant market for such Interest Period, or (b) Any Lender determines that the LIBOR Rate as determined pursuant to the definition thereof will not adequately and fairly reflect the cost to such Lender of maintaining or funding the LIBOR Loans for such Interest Period, such Lender shall forthwith give notice thereof to the Borrower, which notice shall set forth in detail the basis for such notice, whereupon until such Lender notifies the Borrower that the circumstances giving rise to such suspension no longer exist, (a) the obligations of such Lender to make LIBOR Loans shall be suspended, and (b) the Borrower shall convert all of its then outstanding LIBOR Loans from such Lender on the last day of the then current Interest Period applicable to each such LIBOR Loan, to a Prime Loan in an equal principal amount. Interest accrued on such LIBOR Loan prior to such conversion shall be due and payable on the date of such conversion. 3.7 Illegality. If, after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental or regulatory authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender with any request or directive (whether or not having the force of law) of any such governmental or regulatory authority, central bank or comparable agency shall make it unlawful or impossible for such Lender to make, maintain or fund its LIBOR Loans to the Borrower, such Lender shall forthwith give notice thereof to the Borrower. Upon receipt of such notice, the Borrower shall convert all of their then outstanding LIBOR Loans from such Lender on either (a) the last day of the then current Interest Period applicable to such LIBOR Loan if such Lender may lawfully continue to maintain and fund such LIBOR Loan to such day or (b) immediately if such Lender may not lawfully continue to fund and maintain such LIBOR Loan to such day, to a Prime Loan in an equal principal amount. Interest accrued on such LIBOR Loan prior to such conversion shall be due and payable on the date of such conversion together with any funding losses and other amounts due under Section 3.5. -23- 24 3.8 Increased Cost. (a) If (i) Regulation D of the Board of Governors of the Federal Reserve System, as amended, or (ii) after the date hereof, the adoption of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental or regulatory authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender with any request or directive (whether or not having the force of law) of any such governmental or regulatory authority, central bank or comparable agency (a "Regulatory Change"): (i) shall subject any such Lender to any tax, duty or other charge with respect to its LIBOR Loans, the Notes or the obligation to make LIBOR Loans, or shall change the basis of taxation of payments to any such Lender of the principal of or interest on its LIBOR Loans or any other amounts due under this Agreement in respect of its LIBOR Loans or its obligation to make LIBOR Loans (except for taxes on or changes in the rate of tax on the overall net income of such Lender); or (ii) shall impose, modify or deem applicable any reserve (including, without limitation, any reserve imposed by the Board of Governors of the Federal Reserve System), special deposit, capital or similar requirement against assets of, deposits with or for the account of, or credit extended or committed to be extended by, any such Lender or shall, with respect to such Lender impose, modify or deem applicable any other condition affecting such Lender's LIBOR Loans, the Notes or such Lender's obligation to make LIBOR Loans; and the result of any of the foregoing is to increase the cost to (or in the case of Regulation D, to impose a cost on or increase the cost to) such Lender of making or maintaining any LIBOR Loan, or to reduce the amount of any sum received or receivable by such Lender under this Agreement or under any of the Notes with respect thereto, by an amount deemed by such Lender to be material, and if such Lender is not otherwise fully compensated for such increase in cost or reduction in amount received or receivable by virtue of the inclusion of the reference to "LIBOR Reserve Percentage" in the calculation of the LIBOR Rate, then upon notice by such Lender to the Borrower, which notice shall set forth such Lender's supporting calculations and the details of the Regulatory Change, the Borrower shall pay such Lender, as additional interest, such additional amount or amounts as will compensate Lenders for such increased cost or reduction. The determination by any Lender under this Section of the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount or amounts, the Lenders may use any reasonable averaging and attribution methods. (b) If any Lender demands compensation under this Section, the Borrower may at any time, upon at least one (1) Business Day's prior notice to such Lender, convert their then outstanding LIBOR Loans to Prime Loans in an equal principal amount. Interest accrued on such LIBOR Loan prior to such conversion shall be due and payable on the -24- 25 date of such conversion together with any funding losses and other amounts due under Section 3.5. 3.9 Prime Loans Substituted for Affected LIBOR Loans. If notice has been given by any Lender pursuant to Section 3.6 or 3.7 or by the Borrower pursuant to Section 3.8 requiring LIBOR Loans to be repaid or converted, then, unless and until such Lender notifies the Borrower that the circumstances giving rise to such repayment or conversion no longer apply, all Loans which would otherwise be made by such Lender to the Borrower as LIBOR Loans shall be made instead as Prime Loans. Any such Lender shall notify the Borrower if and when the circumstances giving rise to such repayment no longer apply. All indemnities and all provisions relating to reimbursement to any Lender of amounts sufficient to protect the yield to such Lender with respect to the Loans, including, without limitation, Sections 3.5, 3.6, 3.7, and 3.8 hereof, shall survive the payment of the Notes and the termination of this Agreement. 3.10 Place and Manner of Payment. Both principal and interest on the Loans and all fees due hereunder and under any of the other Transaction Documents payable to any Lender shall be paid in lawful currency of the United States, in federal or other immediately available funds, at Agent's banking office at 721 Locust Street, St. Louis, Missouri 63101. The Agent will promptly distribute to each Lender in immediately available funds its ratable share of each such payment received by the Agent pursuant to the terms of this Agreement for the account of such Lenders. Whenever any payment of principal of, or interest on, the Loans or of fees shall be due on a day which is not a Business Day, the date for payment thereof shall be extended to the next succeeding Business Day, except as required by clauses (iii) or (iv) of the definition of Interest Period. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon, at the then applicable rate, shall be payable for such extended time. 3.11 Termination or Reduction of Reducing Revolver Commitments. The Borrower may, upon one (1) Business Day's prior written notice to Agent, terminate entirely at any time, or proportionately reduce from time to time on a pro rata basis among the Lenders based on their respective Reducing Revolver Commitments, by an aggregate amount of $500,000.00 or any larger multiple of $100,000.00, the unused portions of the Reducing Revolver Commitments as specified by Borrower in such notice to Agent; provided, however, that (i) at no time shall the Reducing Revolver Commitments be reduced to a figure less than the total of the outstanding principal amount of all Reducing Revolver Loans plus the face amount of all outstanding Letters of Credit, (ii) at no time shall the Reducing Revolver Commitments be reduced to a figure greater than zero but less than $500,000.00, and (iii) any such termination or reduction shall be permanent and the Borrower shall have no right to thereafter reinstate or increase, as the case may be, the Reducing Revolver Commitment, as the case may be, of any Lender. 3.12 Commitment Fee. From the date hereof to but excluding the last day of the Term hereof, the Borrower shall pay to the Agent, for distribution to the Lenders in accordance with their Pro Rata Shares, a quarterly nonrefundable commitment fee (the "Commitment Fee") equal to the percentage per annum equal to the then current Applicable Margin, multiplied by the average daily unused portion of the Total Reducing Revolver Commitment. The unused portion of the Total Reducing Revolver -25- 26 Commitment shall be calculated as (i) the sum of the amounts each day during any such fiscal quarter equal to the Total Reducing Revolver Commitment minus (y) the outstanding principal balance of all Reducing Revolver Loans on each such day and (z) the face amount of all issued and outstanding Letters of Credit on each such day, divided by (ii) 90, or by such lesser number of days in any partial fiscal quarter for which such Reducing Revolver Commitment was available. Such commitment fee shall be payable quarterly in arrears on each April 1, July 1, October 1 and January 1 during the Term hereof and on the last day of the Term hereof, and shall be calculated on an actual day, 360-day year basis. 3.13 Maturity. All principal, interest and other amounts outstanding with respect to the Reducing Revolver Loans which are not paid prior thereto shall be due and payable on the last day of the Term hereof, whether by reason of the expiration thereof, acceleration or otherwise. 3.14 Voluntary Prepayments. (a) Borrower may, upon notice to Agent specifying that it is paying its Prime Loans, pay its Prime Loans in whole at any time, or from time to time in part in amounts aggregating $10,000.00 or any larger multiple of $10,000.00, by paying the principal amount to be paid together with all accrued and unpaid interest thereon to and including the date of payment; provided, however, that in no event may the Borrower make a partial payment of Prime Loans which results in the total outstanding Reducing Revolver Loans which are Prime Loans being greater than zero but less than $10,000.00. (b) Borrower may, upon at least two (2) Business Day's notice to Agent specifying that it is paying LIBOR Loans, pay on the last day of any Interest Period its LIBOR Loans to which such Interest Period applies, in whole, or in part in amounts aggregating $100,000.00 or any larger multiple of $50,000.00, by paying the principal amount to be paid together with all accrued and unpaid interest thereon to and including the date of payment; provided, however, that in no event may the Borrower make a partial payment of LIBOR Loans which results in the total outstanding LIBOR Loans with respect to which a given Interest Period applies being greater than zero but less than $500,000.00. (c) Upon receipt of a notice of payment pursuant to this Section, the Agent shall promptly notify each Lender of the contents thereof and of such Lender's Pro Rata Share of such payment and such notice shall not thereafter be revocable by Borrower. 3.15 Discretion of Lender as to Manner of Funding. Notwithstanding any provision contained in this Agreement to the contrary, each of the Lenders shall be entitled to fund and maintain its funding of all or any part of its LIBOR Loans in any manner it elects, it being understood, however, that for purposes of this Agreement all determinations hereunder (including, without limitation, the determination of each Lender's funding losses and expenses under Section 3.5) shall be made as if such Lender had actually funded and maintained each LIBOR Loan through the purchase of deposits having a maturity corresponding to the maturity -26- 27 of the applicable Interest Period relating to the applicable LIBOR Loan and bearing an interest rate equal to the applicable LIBOR Rate. Each Lender may, at its option, elect to make, fund or maintain its Loans hereunder at the branches or offices specified on the signature pages hereof or on any Assignment Agreement executed and delivered pursuant to Section 10.12 hereof or at such other of its branches or offices as such Lender may from time to time elect, provided that the Borrower shall not be required to reimburse any Lender under any of the provisions of Section 3.5 for any cost which such Lender would not have incurred but for changing its lending or funding branch unless Borrower consents to such change. SECTION 4. PRECONDITIONS TO LOANS. 4.1 Initial Reducing Revolver Loan or Letter of Credit. Notwithstanding any provision contained herein to the contrary, Lenders shall have no obligation to make any Loan hereunder, and Agent shall have no obligation to issue any Letter of Credit, unless Agent and Lenders shall have received no later than the following: (a) This Agreement and the Notes, each executed by a duly authorized officer of the Borrower; (b) A Consent of Guarantors (the "Consent of Guarantors") consenting to the execution, delivery and performance of this Agreement and the Notes by Borrower, executed and delivered by a duly authorized officer of each Guarantor; (c) The Subsidiary Guaranties of any Subsidiary in existence on the date hereof which has not heretofore provided a Subsidiary Guaranty to Agent, executed and delivered by a duly authorized officer of each of such respective Subsidiaries of Borrower; (d) The Subsidiary Security Agreements, financing statements, motor vehicle title lien applications and such other documents as Agent may reasonably require under Section 5.4 of any Subsidiary in existence on the date hereof which has not heretofore provided a Subsidiary Security Agreement and such other documents to Agent, each executed by a duly authorized officer of each of the respective Subsidiaries of Borrower; (e) A Pledge Agreement, together with such collateral schedules, stock powers (signed in blank) and other documents as Agent may reasonably require under Section 5.3 relating to the stock of any subsidiary in existence on the date hereof not covered by any Pledge Agreement heretofore provided by Borrower to Agent, each executed by a duly authorized officer of the Borrower; (f) The Subsidiary Pledge Agreements, together with such collateral schedules, stock powers (signed in blank) and other documents as Agent may reasonably require under Section 5.5 relating to the stock of any subsidiary of a Subsidiary of Borrower in existence on the date hereof not covered by any Subsidiary Pledge Agreement heretofore provided by Borrower to Agent, each executed by a duly authorized officer of the Borrower; -27- 28 (g) A copy of resolutions of the Board of Directors of Borrower, duly adopted, which authorize the execution, delivery and performance of this Agreement, the Notes, the Pledge Agreement, and the other Transaction Documents to be executed by Borrower, certified by the President and Secretary of Borrower; (h) A copy of resolutions of the Boards of Directors of each of the Guarantors, each duly adopted, authorizing the execution and delivery of the Consent of Guarantors and of each of the Subsidiaries described in (b) above, each duly adopted, authorizing the execution, delivery and performance by each such Subsidiary of its Subsidiary Guaranty, its Subsidiary Security Agreement, its Subsidiary Pledge Agreement and any other Transaction Documents to be executed by such Subsidiary, certified by the Vice President and Assistant Secretary, respectively, of such Subsidiary; (i) Copies of the Articles of Incorporation of each of Borrower's Subsidiaries not previously provided to Agent, including any amendments thereto, certified by the Secretary of State of each of their respective states of incorporation; (j) Copies of the Bylaws of each of Borrower's Subsidiaries not previously provided to Agent, including amendments thereto, certified respectively by the corporate Secretary of Borrower and each such Subsidiary; (k) Incumbency certificates, executed respectively by the Secretaries of the Borrower and of each Subsidiary of the Borrower, which shall identify by name and title and bear the signatures of all of the officers of the Borrower or each such Subsidiary executing any of the Transaction Documents; (l) A certificate of corporate good standing of Borrower and each of its Subsidiaries issued by the Secretary of State of their respective states of incorporation; (m) An opinion of counsel of Wright, Lindsey & Jennings, independent counsel to the Borrower and its Subsidiaries, in the form of Exhibit H attached hereto and incorporated herein by reference; (n) Such other agreements, documents, instruments and certificates as Agent or Lenders may reasonably request. 4.2 Subsequent Reducing Revolver Loans. Notwithstanding any provision contained herein to the contrary, Lenders shall have no obligation to make any subsequent Reducing Revolver Loan hereunder unless: (a) Agent and each of the Lenders shall have received the current quarter-end financial statements and, if required thereunder, the month-end compliance certificate as required by Sections 7.1(a)(ii) and (iii); -28- 29 (b) Agent shall have received a complete application for such Reducing Revolver Loan as required by Section 3.2(a); (c) Any Subsidiary created or acquired by Borrower in connection with the Acceptable Acquisition shall have executed and delivered: (i) A Subsidiary Guaranty executed and delivered by a duly authorized officer of such new Subsidiary of Borrower; (ii) A Subsidiary Security Agreement and a Subsidiary Pledge Agreement, together with such financing statements, collateral schedules, stock powers (signed in blank) and other documents as Agent may reasonably require under Sections 5.4 and 5.5, each executed by a duly authorized officer of such new Subsidiary; (iii) A copy of resolutions of the Board of Directors of such new Subsidiary, duly adopted, authorizing the execution, delivery and performance by such Subsidiary of its Subsidiary Guaranty, its Subsidiary Security Agreement, its Subsidiary Pledge Agreement (if any) and any other Transaction Documents to be executed by such Subsidiary, certified by the President and Secretary of such Subsidiary; (iv) A copy of the Articles of Incorporation of such new Subsidiary, certified by the Secretary of State of its state of incorporation; (v) A copy of the Bylaws of such new Subsidiary, certified by the corporate Secretary of such Subsidiary; (vi) An incumbency certificate, executed by the Secretary of such new Subsidiary, which shall identify by name and title and bear the signatures of all of the officers of such Subsidiary executing any of the Transaction Documents; and (vii) A certificate of corporate good standing of such Subsidiary, issued by the Secretary of State of its state of incorporation. (viii) An opinion of counsel of Wright, Lindsey & Jennings, independent counsel to the Borrower and such Subsidiary in form and substance satisfactory to Agent and the Lenders. (d) Borrower shall have delivered to Agent for the benefit of each of the Lenders, the original stock certificate of such newly created or acquired Subsidiary, together with such collateral schedules, stock powers, and other documents Agent may reasonably require; -29- 30 (e) On the date of and immediately after such Reducing Revolver Loan, no Default or Event of Default under this Agreement shall have occurred and be continuing; (f) On the date of and immediately after such Reducing Revolver Loan, no material adverse change in the business, financial position or results of operations of the Borrower or any of its Subsidiaries shall have occurred since the date of this Agreement and be continuing; (g) All of the representations and warranties of the Borrower contained in this Agreement, including any pertaining to the new Subsidiary created or acquired as a result of the Acceptable Acquisition, shall be true and correct on and as of the date of such Reducing Revolver Loan, as if made on the date of such Reducing Revolver Loan. Each request for a Reducing Revolver Loan by the Borrower hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Reducing Revolver Loan as to the facts specified in clauses (e), (f) and (g) of this Section 4.2. SECTION 5. COLLATERAL. 5.1 Security Agreement. In order to secure the payment when due of the Borrower's Obligations, the Borrower has conveyed to Agent for the benefit of each of the Lenders a security interest in, among other things, all of the Property of the Borrower described on Schedule 5 attached hereto and incorporated herein by reference, which security interest shall be a first and prior interest in all such items except for those Uniform Commercial Code security interests described on Schedule 6.11 attached hereto. Said security interest is evidenced by a Security Agreement dated October 4, 1996 and executed by the Borrower in favor of Agent for the benefit of each of the Lenders (as the same may from time to time be amended, the "Security Agreement"). The Borrower further covenants and agrees to execute and deliver to Agent for the benefit of each of the Lenders any and all financing statements, continuation statements and such other documentation as may be requested by Agent from time to time in order to create, perfect and continue said security interests. Upon demand, the Borrower shall pay all legal and filing fees and expenses incurred by Agent in the preparation of the foregoing documents and perfection of the security interests contemplated thereby. Lenders shall have no obligation to make any Loan or convert the interest rate on any Loan hereunder unless and until the Borrower has fully satisfied these requirements. 5.2 Trademark Assignment. In order to further secure the payment when due of the Borrower's Obligations, the Borrower has conveyed to Agent for the benefit of each of the Lenders a security interest in and collateral assignment of, among other things, all of the existing and future trademarks and trademark applications of Borrower, which security interest and collateral assignment shall be a first and prior interest in all such items except for those security interests described on Schedule 6.11 attached hereto. Said security interest and collateral assignment is evidenced by a Trademark Collateral Assignment and Security Agreement dated October 4, 1996 and executed by the Borrower in favor of Agent for the benefit of each of the -30- 31 Lenders in form and substance acceptable to Agent (as the same may from time to time be amended, the "Trademark Assignment"). The Borrower further covenants and agrees to execute and deliver to Agent for the benefit of each of the Lenders any and all amendments and exhibits thereto for any future trademarks and trademark applications filed by Borrower and such other documentation as may be requested by Agent from time to time in order to create, perfect and continue said security interests. Upon demand, the Borrower shall pay all legal and filing fees and expenses incurred by Agent in the preparation of the foregoing documents and perfection of the security interests contemplated thereby. Lenders shall have no obligation to make any Loan or convert the interest rate on any Loan hereunder unless and until the Borrower has fully satisfied these requirements. 5.3 Pledge Agreement. In order to further secure the payment when due of the Borrower's Obligations, the Borrower has pledged to Agent for the benefit of each of the Lenders all of the issued and outstanding capital stock of each present Subsidiary of the Borrower, and if any such Subsidiary is created or acquired subsequent to the date hereof, on the date of any such acquisition or formation, Borrower shall pledge and deliver to Agent for the benefit of each of the Lenders all of the issued and outstanding stock of any such future Subsidiary. Said pledge is more fully described and evidenced by that certain General Pledge and Security Agreement dated October 4, 1996 and executed by the Borrower in favor of Agent for the benefit of each of the Lenders and each of the other General Pledge and Security Agreements heretofore executed and delivered by Borrower to Agent for the benefit of each of the Lenders (as the same may from time to time be amended, modified, extended or renewed, collectively, the "Pledge Agreements"). The Borrower covenants and agrees to execute any and all collateral schedules, stock powers and such other documents as may from time to time be requested by Agent or any Lender in order to create, perfect and maintain the pledge created by the Pledge Agreements and to deliver all original stock certificates for any such present or future Subsidiaries. Upon demand, the Borrower shall pay to Agent or to any other party designated by Agent, all filing fees or transfer fees incurred by Agent in the perfection and administration of the pledge contemplated hereby. Lenders shall have no obligation to make any Loan hereunder or to convert any Loan hereunder to a new interest rate basis unless and until the Borrower has fully satisfied these requirements. 5.4 Subsidiary Security Agreement. In order to secure the payment when due of the Borrower's Obligations, as guaranteed under each of the respective Subsidiary Guaranties, the Borrower heretofore caused and hereafter shall cause each Subsidiary to convey to Agent for the benefit of each of the Lenders a security interest in, among other things, all of the Property of each such Subsidiary similar to that described on Schedule 5 attached hereto and incorporated herein by reference, which security interest shall be a first and prior interest in all such items except for those Uniform Commercial Code security interests consented to by Agent and the Required Lenders. Said security interest shall be evidenced by a Subsidiary Security Agreement and executed, respectively, by each such Subsidiary in favor of Agent for the benefit of each of the Lenders in form and substance acceptable to Agent (as the same may from time to time be amended, the "Subsidiary Security Agreements"). The Borrower further covenants and agrees to cause each of its Subsidiaries to execute and deliver to Agent for the benefit of each of the Lenders any and all financing statements, continuation statements and such other documentation -31- 32 as may be requested by Agent from time to time in order to create, perfect and continue said security interests. Upon demand, the Borrower shall pay all legal and filing fees and expenses incurred by Agent in the preparation of the foregoing documents and perfection of the security interests contemplated thereby. Lenders shall have no obligation to make any Loan hereunder or convert the interest rate on any Loan hereunder unless and until the Borrower and each of its Subsidiaries have fully satisfied these requirements. 5.5 Subsidiary Pledge Agreements. In order to further secure the payment when due of the Borrower's Obligations, as guaranteed under each of the respective Subsidiary Guaranties, the Borrower heretofore has caused and hereafter shall cause each of its Subsidiaries to pledge to Agent for the benefit of each of the Lenders all of the issued and outstanding capital stock of each present Subsidiary of such Subsidiary of Borrower, and if any such Subsidiary is created or acquired subsequent to the date hereof, on the date of any such acquisition or formation, Borrower shall cause each of its Subsidiaries to pledge and deliver to Agent for the benefit of each of the Lenders all of the issued and outstanding stock of any such future Subsidiary. Each such pledge is or shall be evidenced by a General Pledge and Security Agreement executed, respectively, by each such Subsidiary of the Borrower in favor of Agent for the benefit of each of the Lenders in form and substance acceptable to Agent (as the same may from time to time be amended, modified, extended or renewed, the "Subsidiary Pledge Agreements"). The Borrower covenants and agrees to cause each of its Subsidiaries to execute any and all collateral schedules, stock powers and such other documents as from time to time may be requested by Agent or any Lender in order to create, perfect and maintain the pledges created by the Subsidiary Pledge Agreements and to deliver all original stock certificates for any such present or future Subsidiaries. Upon demand, the Borrower shall pay to Agent or to any other party designated by Agent, all filing fees or transfer fees incurred by Agent in the perfection and administration of the pledges contemplated hereby. Lenders shall have no obligation to make any Loan hereunder or to convert any Loan hereunder to a new interest rate basis unless and until the borrower has fully satisfied these requirements. SECTION 6. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Agent and Lenders that: 6.1 Corporate Existence and Power. Borrower: (a) is duly incorporated, validly existing and in good standing under the laws of the State of Delaware; (b) has all requisite corporate powers and all governmental and regulatory licenses, authorizations, consents and approvals required to carry on its business as now conducted; and (c) is duly qualified to do business in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure to so qualify would have a material adverse effect on its business, financial condition or operations. 6.2 Authorization. The execution, delivery and performance by the Borrower of this Agreement, the Notes, the Security Agreement, the Pledge Agreements, the Trademark Assignment and the other Transaction Documents are within the corporate powers of Borrower, -32- 33 and have been duly authorized by all necessary action of the board of directors of said corporation. 6.3 Binding Effect. This Agreement, the Notes, the Security Agreement, the Pledge Agreements, the Trademark Assignment and the other Transaction Documents have been duly executed and delivered by the Borrower and constitute the legal, valid and binding obligations of the Borrower enforceable in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency or other similar laws affecting creditors' rights in general. 6.4 Financial Statements. The Borrower has furnished Agent and the Lenders with the following financial statements, identified by the principal financial officer of the Borrower: consolidated and consolidating balance sheets as of September 30, 1997 and corresponding statements of income, retained earnings and cash flows of Borrower and each of its Consolidated Subsidiaries for the fiscal quarter ending September 30, 1997, certified by the principal financial officer of the Borrower as being true and correct to the best of his knowledge and as being prepared in accordance with the Borrower's normal accounting procedures. The Borrower further represents and warrants to Agent and each of the Lenders that: (1) said balance sheets and their accompanying notes fairly present the condition of Borrower and its Consolidated Subsidiaries as of the dates thereof; (2) there has been no material adverse change in the condition or operation, financial or otherwise, of any of the Borrower or its Consolidated Subsidiaries since September 30, 1997; and (3) neither the Borrower nor any of its Subsidiaries has any direct or contingent liabilities which are not disclosed on said financial statements. 6.5 Litigation. Except as disclosed on Schedule 6.5 attached hereto, there is no action or proceeding pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any Subsidiary of the Borrower before any court, arbitrator or any governmental, regulatory or administrative body, agency or official which could result in any material adverse change in the condition or operation, financial or otherwise, of the Borrower or any Subsidiary of the Borrower, and neither the Borrower nor any Subsidiary of the Borrower is in default with respect to any order, writ, injunction, decision or decree of any court, arbitrator or any governmental, regulatory or administrative body, agency or official, a default under which could have a material adverse effect on the condition or operation, financial or otherwise, of the Borrower or any Subsidiary of the Borrower. 6.6 Pension and Welfare Plans. Each Pension Plan complies with all applicable statutes and governmental rules and regulations; no Reportable Event has occurred and is continuing with respect to any Pension Plan; neither the Borrower nor any ERISA Affiliate nor any Subsidiary of the Borrower has withdrawn from any Multiemployer Plan in a "complete withdrawal" or a "partial withdrawal" as defined in Sections 4203 or 4205 of ERISA, respectively; no steps have been instituted by the Borrower, any ERISA Affiliate or any Subsidiary of the Borrower to terminate any Pension Plan; no condition exists or event or transaction has occurred in connection with any Pension Plan or Multiemployer Plan which could result in the incurrence by the Borrower, any ERISA Affiliate or any Subsidiary of the Borrower of any material liability, fine or penalty; and neither the Borrower nor any ERISA -33- 34 Affiliate nor any Subsidiary of the Borrower is a "contributing sponsor" as defined in Section 4001(a)(13) of ERISA of a "single-employer plan" as defined in Section 4001(a)(15) of ERISA which has two or more contributing sponsors at least two of whom are not under common control. Except as disclosed on Schedule 6.6 attached hereto, neither the Borrower nor any Subsidiary of the Borrower has any contingent liability with respect to any "employee welfare benefit plan", as such term is defined in Section 3(a) of ERISA, which covers retired employees and their beneficiaries. 6.7 Tax Returns and Payment. The Borrower and each Subsidiary of the Borrower has filed all federal, state and local income tax returns and all other tax returns which are required to be filed and has paid all taxes due pursuant to such returns or pursuant to any assessment received by the Borrower or any Subsidiary of the Borrower, except for the filing of such returns, if any, in respect of which an extension of time for filing is in effect and except for such taxes, if any, as are being contested in good faith by appropriate proceedings being diligently conducted and as to which adequate reserves in accordance with generally accepted accounting principles consistently applied have been provided. The charges, accruals and reserves on the books of the Borrower and each Subsidiary of the Borrower in respect of any taxes or other governmental charges are, in the opinion of the Borrower, adequate. 6.8 Subsidiaries. The Borrower's Subsidiaries are as listed in Schedule 6.8 attached hereto, which schedule sets forth each such Subsidiary's past and present names, their current principal places of business and all locations of any inventory or equipment owned by such Subsidiaries. 6.9 Compliance With Other Instruments; None Burdensome. Neither the Borrower nor any Subsidiary of the Borrower is a party to any contract or agreement or subject to any charter or other corporate restriction which materially and adversely affects its business, Property or financial condition and which is not disclosed on the Borrower's financial statements heretofore submitted to Agent and the Lenders; none of the execution and delivery by the Borrower of the Transaction Documents, the consummation of the transactions therein contemplated or the 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 provisions of Borrower's Articles of Incorporation or Bylaws or any of the provisions of any indenture, agreement, document, instrument or undertaking to which the Borrower is a party or 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 pursuant to the terms of any such indenture, agreement, document, instrument or undertaking (other than in favor of Agent for the benefit of Lenders pursuant to the Transaction Documents). No order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by, any governmental, regulatory, administrative or public body or authority, or any subdivision thereof, is required to authorize, or is required in connection with, the execution, delivery or performance of, or the legality, validity, binding effect or enforceability of, any of the Transaction Documents. -34- 35 6.10 Other Loans and Guarantees. Except as disclosed on Schedule 6.10 attached hereto, neither the Borrower nor any Subsidiary of the Borrower is a party to any loan transaction or Guarantee other than this Agreement and the Subsidiary Guaranties. 6.11 Title to Property. The Borrower, and each Subsidiary of the Borrower, is the sole and absolute owner of, or has the legal right to use and occupy, all Property it claims to own or which is necessary for the Borrower or such Subsidiary of the Borrower to conduct its business. Neither the Borrower nor any Subsidiary of the Borrower has signed any financing statements, security agreements or chattel mortgages with respect to any of its Property, has granted or permitted any Liens with respect to any of its Property or has any knowledge of any Liens with respect to any of its Property, except in favor of Agent for the benefit of Lenders or as otherwise disclosed on Schedule 6.11 attached hereto. 6.12 Multi-Employer Pension Plan Amendments Act of 1980. Neither the Borrower nor any Subsidiary of the Borrower is a party to any Multiemployer Plan. 6.13 Patents, Licenses, Trademarks, Etc. The Borrower, and each Subsidiary of the Borrower, possesses all necessary patents, licenses, trademarks, trademark rights, trade names, trade name rights and copyrights to conduct its business without conflict with any patent, license, trademark, trade name or copyright of any other Person. 6.14 Environmental and Safety and Health Matters. Except as disclosed on Schedule 6.14 attached hereto: (i) the operations of the Borrower and each Subsidiary of the Borrower comply with (A) all applicable Environmental Laws and (B) all applicable Occupational Safety and Health Laws; (ii) none of the operations of the Borrower or any Subsidiary of the Borrower is subject to any judicial, governmental, regulatory or administrative proceeding alleging the violation of any Environmental Law or Occupational Safety and Health Law; (iii) none of the operations of the Borrower or any Subsidiary of the Borrower is the subject of any federal or state investigation evaluating whether any remedial action is needed to respond to (A) any spillage, disposal or release into the environment of any Hazardous Material or any other hazardous, toxic or dangerous waste, substance or constituent or other substance, or (B) any unsafe or unhealthful condition at any premises of the Borrower or such Subsidiary of the Borrower; (iv) neither the Borrower nor any Subsidiary of the Borrower has filed any notice under any Environmental Law or Occupational Safety and Health Law indicating or reporting (A) any past or present spillage, disposal or release into the environment of, or treatment, storage or disposal of, any Hazardous Material or any other hazardous, toxic or dangerous waste, substance or constituent or other substance or (B) any unsafe or unhealthful condition at any premises of the Borrower or such Subsidiary of the Borrower; and (v) neither the Borrower nor any Subsidiary of the Borrower has any known contingent liability in connection with (A) any spillage, disposal or release into the environment of, or otherwise with respect to, any Hazardous Material or any other hazardous, toxic or dangerous waste, substance or constituent or other substance or (B) any unsafe or unhealthful condition at any premises of the Borrower or such Subsidiary of the Borrower. -35- 36 6.15 Other Corporate or Fictitious Names. The Borrower has not, during the preceding five (5) years, been known by or used any corporate or fictitious name other than "StaffMark, Inc." or "One Source Staffing, Inc.," and no Subsidiary of Borrower has used any such other corporate or fictitious name during the preceding five (5) years other than those listed in Schedule 6.15 attached hereto. SECTION 7. COVENANTS. 7.1 Affirmative Covenants of the Borrower. The Borrower covenants and agrees that, so long as Lenders have any obligation to make any Loan hereunder or any of the Borrower's Obligations remain unpaid or any Letter of Credit remains outstanding: (a) Information. The Borrower will deliver to Agent and each of the Lenders: (i) As soon as available and in any event within one hundred twenty (120) days after the end of each fiscal year of Borrower, the consolidated and consolidating balance sheets of Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated and consolidating statements of income, retained earnings and cash flows for such fiscal year, setting forth in each case, in comparative form, the figures for the previous fiscal year, all such financial statements to be prepared in accordance with generally accepted accounting principles consistently applied and audited by independent certified public accountants selected by the Borrower and acceptable to Agent, together with (1) the unqualified opinion of such accountants (except with respect to consistency qualifications arising from new accounting principles), and (2) a letter from such accountants authorizing Agent and Lenders to receive and rely on such audited financial statements of Borrower as if in privity of contract with such accountants or such other agreement of normal acceptance in the accounting profession as may be used in the future to permit lenders to rely on financial statements of a borrower in making credit decisions; (ii) As soon as available and in any event within forty-five (45) days after the end of each fiscal quarter, consolidated and consolidating balance sheets of Borrower and its Consolidated Subsidiaries as of the end of such quarter and the related consolidated and consolidating statements of income for such quarter and for the portion of the Borrower's fiscal year ended at the end of such quarter, setting forth in each case in comparative form, the figures for the corresponding quarter and the corresponding portion of the Borrower's previous fiscal year and the figures for such quarter and such portion of Borrower's current fiscal year from Borrower's budget for such year, all certified (subject to normal year-end adjustments) as to fairness of presentation, generally accepted accounting principles and consistency by the principal financial officer of Borrower; -36- 37 (iii) Simultaneously with the delivery of each set of quarter end and fiscal year end financial statements referred to in clauses (i) and (ii) above and, in addition, during any time that the outstanding principal balance of all Loans outstanding hereunder plus the face amount of all issued and outstanding Letters of Credit exceeds One Hundred Million Dollars ($100,000,000.00), within forty-five (45) days after the end of each calendar month, a certificate of the principal financial officer of Borrower in the form attached hereto as Exhibit B and incorporated herein by reference; (iv) Promptly upon receipt thereof, any reports submitted to the Borrower or any Consolidated Subsidiary of the Borrower (other than reports previously delivered pursuant to Sections 7.1(a)(i) and (ii) above) by independent accountants in connection with any annual, interim or special audit made by them of the books of the Borrower or any Consolidated Subsidiary of the Borrower; (v) On the last day of each February, April, June, August, October and December during the Term hereof, a report of all places of business of the Borrower and each Subsidiary of the Borrower and all locations of any of the Collateral as of the date of such report; (vi) Promptly upon any filing thereof, and in any event within ten (10) days after the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on form S-8 or its equivalent) and annual, quarterly or monthly reports which Borrower shall file with the Securities and Exchange Commission; (vii) Promptly upon the mailing thereof to the shareholders of Borrower generally, and in any event within ten (10) days after such mailing, copies of all financial statements, reports, proxy statements and other material and information so mailed; (viii) Within ninety (90) days of the beginning of each fiscal year of the Borrower, the Borrower's annual budget and quarterly projections for such fiscal year; (ix) Not less than ten (10) Business Days, if Lenders' consent is required, or three (3) Business Days if Lenders' consent is not required, under clause (c) of the definition of Acceptable Acquisition in Section 2 of this Agreement, prior to the closing of any Acceptable Acquisition, the following documents and information with respect to such Acceptable Acquisition: (A) a copy of the letter of intent signed by all parties or if no letter of intent has been signed, a detailed summary of the terms and conditions upon which the Acquisition is being negotiated, including Borrower's rationale for pursuing the Acquisition, (B) historical financial statements of the target company and any other documents reasonably requested by any Lender received by Borrower in performing its due -37- 38 diligence; (C) a copy of the financial models run or projections made of the Borrower that include the target company; and (D) such other information and documents reasonably requested by any Lender with respect to such Acceptable Acquisition. (x) Within forty-five (45) days after the end of each fiscal quarter, a schedule of all Deferred Payment Obligations of Borrower and its Consolidated Subsidiaries which remain outstanding as of the end of such quarter, certified by the principal financial officer of Borrower; and (xi) With reasonable promptness, such further information regarding the business, affairs and/or financial condition of Borrower or any Subsidiary of Borrower as Agent or any of the Lenders may from time to time reasonably request. Agent and each of the Lenders are hereby authorized to deliver a copy of any financial statement or other information made available by the Borrower to any regulatory authority having jurisdiction over Agent or any such Lender, pursuant to any request therefor. (b) Payment of Indebtedness. The Borrower and each Subsidiary of the Borrower will (i) pay any and all Indebtedness payable or Guaranteed by the Borrower or such Subsidiary of the Borrower, as the case may be, and any interest or premium thereon, when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) in accordance with the agreement, document or instrument relating to such Indebtedness or Guarantee and (ii) faithfully perform, observe and discharge all covenants, conditions and obligations which are imposed upon the Borrower or such Subsidiary of the Borrower, as the case may be, by any and all agreements, documents and instruments evidencing, securing or otherwise relating to such Indebtedness or Guarantee. (c) Consultations and Inspections. The Borrower will permit, and will cause each Subsidiary of the Borrower to permit, Agent and Lenders (and any Person appointed by Agent or any of the Lenders to whom the Borrower does not reasonably object) to discuss the affairs, finances and accounts of the Borrower and each Subsidiary of the Borrower with the officers of the Borrower and each Subsidiary of the Borrower, all at such reasonable times and as often as Agent or any of the Lenders may reasonably request. The Borrower will also permit, and will cause each Subsidiary of the Borrower to permit, inspection of its Properties, books and records and the Collateral by Agent and Lenders, upon reasonable advance notice, during normal business hours or at other reasonable times. The Borrower will also permit, and will cause each Subsidiary of the Borrower to permit, Agent and Lenders to conduct Accounts field inspections at such times during reasonable business hours as Agent or any of the Lenders elects, and without the necessity of advance warning to the Borrower or any such Subsidiary. Prior to the occurrence of an Event of Default, Borrower shall pay all reasonable costs and expenses incurred by Agent and the Lenders for one such inspection in each fiscal year (not to exceed $15,000.00 in any fiscal year for inspections conducted prior to an Event of Default), provided, that after the occurrence of an Event of Default, Borrower shall pay all reasonable costs and expenses incurred -38- 39 by Agent or any such Lender in connection with any such inspections. The Borrower further agrees to reimburse to Agent and the Lenders the actual costs and expenses incurred by Agent or any of the Lenders in connection with its up front collateral inspection conducted prior to closing by Agent or any of the Lenders, whether Agent or any such Lender shall have used its own auditors or shall contract for such audit services through a third party. (d) Payment of Taxes; Corporate Existence; Maintenance of Properties; Maintenance of Collateral; Insurance. The Borrower and each Subsidiary of the Borrower will: (i) Duly file all federal, state and local income tax returns and all other tax returns and reports of the Borrower and each Subsidiary of the Borrower which are required to be filed and duly pay and discharge promptly all taxes, assessments and other governmental charges imposed upon it or any of its income, Property or assets; provided, however, that neither the Borrower nor any Subsidiary of the Borrower shall be required to pay any such tax, assessment or other governmental charge the payment of which is being contested in good faith and by appropriate proceedings diligently conducted and for which adequate reserves in form and amount satisfactory to Agent in its reasonable discretion have been provided, except that the Borrower and each Subsidiary of the Borrower shall pay or cause to be paid all such taxes, assessments and governmental charges forthwith upon the commencement of proceedings to foreclose any Lien which is attached as security therefor, unless such foreclosure is stayed by the filing of an appropriate bond in a manner satisfactory to Agent; (ii) Do all things necessary to preserve and keep in full force and effect its corporate existence, rights and franchise and to be duly qualified to do business in all jurisdictions where the nature of its business requires such qualification; (iii) Maintain and keep its Properties as a whole in good repair, working order and condition; provided, however, that nothing in this subsection (iii) shall prevent any abandonment of any Property which is not disadvantageous in any material respect to Lenders and which, in the good faith opinion of the management of the Borrower, is in the best interests of the Borrower or such Subsidiary of the Borrower, as the case may be; (iv) Keep all of the Collateral in good and merchantable condition, and will, as applicable, shelter, store, secure, refrigerate, process and otherwise deal with the Collateral in accordance with the standards and practices adhered to generally by owners, bailees or processors, as applicable, of like properties; and (v) Insure with financially sound and reputable insurers acceptable to Lenders, all Property of the Borrower and each Subsidiary of the -39- 40 Borrower of the character usually insured by corporations engaged in the same or similar businesses similarly situated, against loss or damage of the kind customarily insured against by such corporations or partnerships, unless higher limits or coverage are reasonably required in writing by Agent, and carry adequate liability insurance and other insurance of a kind and in an amount generally carried by corporations engaged in the same or similar businesses similarly situated, unless higher limits or coverage are reasonably required in writing by Agent, and in each case naming Agent as loss payee, as mortgagee or as an additional insured, as appropriate, in such policies for the benefit of each of the Lenders. All such insurance may be subject to reasonable deductible amounts. Promptly upon any Lender's request therefor, the Borrower shall provide such Lender with evidence that the Borrower maintains, and that each Subsidiary of the Borrower maintains, the insurance required under this Section 7.1(d)(v), and evidence of the payment of all premiums therefor. (e) Accountants. The Borrower shall give Agent and each of the Lenders prompt notice of any change of the Borrower's independent certified public accountants and a statement of the reasons for such change. The Borrower shall at all times utilize independent certified public accountants reasonably acceptable to Agent and Lenders. (f) ERISA Compliance. If the Borrower or any Subsidiary of the Borrower shall have any Pension Plan, the Borrower and such Subsidiary or Subsidiaries of the Borrower shall comply with all requirements of ERISA relating to such plan. Without limiting the generality of the foregoing, neither the Borrower nor any Subsidiary of the Borrower shall: (i) permit any Pension Plan maintained by it to engage in any nonexempt "prohibited transaction," as such term is defined in Section 4975 of the Code; (ii) permit any Pension Plan maintained by it to incur any "accumulated funding deficiency", as such term is defined in Section 302 of ERISA, 29 U.S.C. Section 1082, whether or not waived; (iii) terminate any such Pension Plan in a manner which could result in the imposition of a Lien on any Property of the Borrower or any Subsidiary of the Borrower pursuant to Section 4068 of ERISA, 29 U.S.C. ss. 1368; or (iv) take any action which would constitute a complete or partial withdrawal from a Multiemployer Plan within the meaning of Sections 4203 and 4205 of Title IV of ERISA. Notwithstanding any provision contained in this Section 7.1(f) to the contrary, an act by the Borrower or any Subsidiary of the Borrower shall not be deemed to constitute a violation of subparagraphs (i) through (iv) hereof unless Agent determines in good faith that said -40- 41 action, individually or cumulatively with other acts of the Borrower and the Subsidiaries of the Borrower, does have or is likely to cause a significant adverse financial effect upon the Borrower or any such Subsidiary of the Borrower. Borrower shall have the affirmative obligation hereunder to report to Agent any of those acts identified in subparagraphs (i) through (iv) hereof, regardless of whether said act does or is likely to cause a significant adverse financial effect upon the Borrower or any Subsidiary of the Borrower, and failure by the Borrower to report such act promptly upon the Borrower's becoming aware of the existence thereof shall constitute an Event of Default hereunder. (g) Maintenance of Books and Records. The Borrower and each Subsidiary of the Borrower will maintain its books and records in accordance with generally accepted accounting principles consistently applied and in which true, correct and complete entries will be made of all of its dealings and transactions. (h) Further Assurances. The Borrower will execute any and all further agreements, documents and instruments, and take any and all further actions which may be required under applicable law, or which Agent or any of the Lenders may from time to time reasonably request, in order to effectuate the transactions contemplated by this Agreement, the Notes, the Security Agreement, the Pledge Agreements, the Trademark Assignment the Letter of Credit Applications and the other Transaction Documents. (i) Financial Covenants. The Borrower will: (i) Fixed Charges Coverage Ratio. Maintain on a consolidated basis as of each fiscal quarter-end during the Term hereof a ratio of Consolidated Proforma Operating Cash Flow to Consolidated Fixed Charges determined for the 12-month period ending as of each such fiscal quarter-end of not less than (a) 1.25 to 1.0 for each fiscal quarter ending on or before June 30, 2000, and (b) 1.50 to 1.0 for each fiscal quarter-end thereafter during the Term hereof. (ii) Consolidated Adjusted Total Funded Debt to Consolidated Proforma EBITDA Cash Flow. Maintain on a consolidated basis at each fiscal quarter-end during the Term hereof, a ratio of Consolidated Adjusted Total Funded Debt to Consolidated Proforma EBITDA Cash Flow (determined for the twelve-month period ending on the date of any such calculation) of not more than: (a) 4.00 to 1.0 for each quarter-end occurring on or before March 31, 1999, and (b) 3.50 to 1.0 for quarters ending after March 31, 1999 through the remainder of the Term hereof. (iii) Consolidated Shareholders' Equity. Maintain on a consolidated basis determined as of each fiscal quarter-end during the Term hereof, Consolidated Shareholders' Equity of at least the sum of (x) $185,000,000.00, plus (y) fifty percent (50%) of the after tax net income for each fiscal quarter of Borrower in which net income is earned (but zero percent (0%) of -41- 42 any after tax net loss for any fiscal quarter of Borrower in which a net loss is incurred) as shown on Borrower's financial statements delivered pursuant to Section 7.1(a)(i) and (ii), commencing with the addition of any net income for the fiscal quarter ending March 31, 1998, with such required increases to be cumulative for each fiscal quarter thereafter during the Term hereof, plus (z) one hundred percent (100%) of the net proceeds received by Borrower or any of its consolidated Subsidiaries from capital stock issued by Borrower or such Subsidiary subsequent to December 31, 1997, including without limitation, the value received in an Acceptable Acquisition in exchange for capital stock. (iv) Deliver a certificate of the principal financial officer of the Borrower containing the financial ratio calculations required in clauses (i), (ii) and (iii) above simultaneously with the financial statements referred to in Sections 7.1(a)(i) and (ii). (j) Compliance with Law. The Borrower will, and will cause each Subsidiary of the Borrower to, comply with any and all laws, ordinances and governmental and regulatory rules and regulations to which it is subject and obtain any and all licenses, permits, franchises and other governmental and regulatory authorizations necessary to the ownership of its Properties or to the conduct of its business, which violation or failure to obtain might materially adversely affect the condition or operation, financial or otherwise, of the Borrower or any Subsidiary of the Borrower. (k) Notices. The Borrower will notify Agent and the Lenders in writing of any of the following immediately upon learning of the occurrence thereof, describing the same and, if applicable, the steps being taken by the Person(s) affected with respect thereto: (i) Default. The occurrence of any Default or Event of Default under this Agreement or any default or event of default by the Borrower, any other Obligor or any Subsidiary of the Borrower under any note, indenture, loan agreement, mortgage, deed of trust, security agreement, lease or other similar agreement, document or instrument to which the Borrower, any other Obligor or any Subsidiary of the Borrower, as the case may be, is a party or by which it is bound or to which it is subject; (ii) Litigation. The institution of any litigation, arbitration proceeding or governmental or regulatory proceeding affecting the Borrower, any other Obligor, any Subsidiary of the Borrower, any Collateral or any Third Party Collateral, whether or not considered to be covered by insurance, provided that if such action is an action for money damages, that the damages sought are in excess of $1,000,000.00 or if more than one such action has been instituted, in excess of $5,000,000.00 in the aggregate; (iii) Judgment. The entry of any judgment or decree against the Borrower, any other Obligor or any Subsidiary of the Borrower in excess of -42- 43 $1,000,000.00 or if more than one such judgment or decree has been entered, in excess of $5,000,000.00 in the aggregate; (iv) Pension Plans. The occurrence of a Reportable Event with respect to any Pension Plan; the filing of a notice of intent to terminate a Pension Plan by the Borrower, any ERISA Affiliate or any Subsidiary of the Borrower; the institution of proceedings to terminate a Pension Plan by the PBGC or any other Person; the withdrawal in a "complete withdrawal" or a "partial withdrawal" as defined in Sections 4203 and 4205, respectively, of ERISA by the Borrower, any ERISA Affiliate or any Subsidiary of the Borrower from any Multiemployer Plan; or the incurrence of any material increase in the contingent liability of the Borrower or any Subsidiary of the Borrower with respect to any "employee welfare benefit plan" as defined in Section 3(1) of ERISA which covers retired employees and their beneficiaries; (v) Change of Name. Any change in the name of the Borrower, any other Obligor or any Subsidiary of the Borrower; (vi) Environmental Matters. Receipt of any notice that the operations of the Borrower, any other Obligor or any Subsidiary of the Borrower are not in full compliance with any of the requirements of any applicable Environmental Law or Occupational Safety and Health Law; receipt of notice that the Borrower, any other Obligor or any Subsidiary of the Borrower is subject to any federal, state or local investigation evaluating whether any remedial action is needed to respond to the release of any Hazardous Materials or any other hazardous or toxic waste, substance or constituent or other substance into the environment; or receipt of notice that any of the Properties or assets of the Borrower, any other Obligor or any Subsidiary of the Borrower are subject to an Environmental Lien. For purposes of this Section 7.1(k)(vi), "Environmental Lien" shall mean a Lien in favor of any governmental or regulatory agency, entity, authority or official for (1) any liability under Environmental Laws or (2) damages arising from or costs incurred by any such governmental or regulatory agency, entity, authority or official in response to a release of any Hazardous Materials or any other hazardous or toxic waste, substance or constituent or other substance into the environment; (vii) Material Adverse Change. The occurrence of any material adverse change in the business, operations or condition, financial or otherwise, of the Borrower, any other Obligor or any Subsidiary of the Borrower; (viii) Change in Management or Line(s) of Business. Any material change in the directors and executive officers of the Borrower or any Subsidiary of the Borrower as listed in Schedule 7.1(k)(viii) attached hereto, or any change in the Borrower's or any Subsidiary of the Borrower's line(s) of business; and -43- 44 (ix) Other Notices. Any notices required to be provided pursuant to other provisions of this Agreement and notice of the occurrence of such other events as Agent may from time to time reasonably specify. (l) Protection of Collateral. During the term of this Agreement, the Borrower will (i) do all things necessary to keep unimpaired the Borrower's rights in the Collateral; (ii) cause all operating equipment included in the Collateral to be maintained properly in good and effective operating condition with all repairs, renewals, replacements, additions and improvements being promptly made in accordance with generally accepted practices and applicable federal, state and local laws, rules and regulations; (iii) pay, or cause to be paid, promptly as and when due and payable, all expenses incurred in or arising from the maintenance, storage and care of the Collateral; and (iv) cause the Inventory and other Collateral to be properly maintained and protected in accordance with prudent operating practice, giving consideration to and complying with applicable federal, state and local laws, rules and regulations. 7.2 Negative Covenants of the Borrower. The Borrower covenants and agrees that, so long as Lenders have any obligation to make any Loan hereunder or any of the Borrower's Obligations remain unpaid or any Letter of Credit remains outstanding, unless the prior written consent of the Required Lenders is obtained: (a) Limitation on Indebtedness. Neither the Borrower nor any Subsidiary of the Borrower will incur or be obligated on any Indebtedness, either directly or indirectly, by way of Guarantee, suretyship or otherwise, other than: (i) Indebtedness evidenced by the Notes; (ii) Unsecured trade accounts payable and normal accruals incurred in the ordinary course of business which are not yet due and payable; (iii) The following categories of Indebtedness, all of which, in the aggregate, together with the payments permitted by Section 7.2(m) (Operating Leases) shall not exceed at any one time Twenty-Five Million Dollars ($25,000,000.00): (A) Indebtedness incurred in the ordinary course of business in connection with the acquisition of Property by Borrower (excluding Indebtedness assumed on any capital assets acquired pursuant to an Acceptable Acquisition), provided that such Indebtedness shall not exceed the value of the Property so acquired; and (B) Secured or unsecured Indebtedness assumed by Borrower or a Subsidiary in connection with an Acceptable Acquisition or any other unsecured Indebtedness incurred in the ordinary course of business. -44- 45 (iv) Subordinated Debt (y) incurred in connection with one or more Acceptable Acquisitions not to exceed in the aggregate $20,000,000.00 and (z) incurred other than in connection with an Acceptable Acquisition not to exceed in the aggregate $150,000,000.00 less any Subordinated Debt incurred in connection with an Acceptable Acquisition, provided that all such Subordinated Debt is unsecured, and the holder of such Subordinated Debt has executed a Subordination and Standby Agreement in favor of Agent and the Lenders substantially in the form of Exhibit G attached hereto, which Subordination and Standby Agreement shall, among other things: (A) (1) if such Subordinated Debt was incurred in connection with an Acceptable Acquisition, notwithstanding any terms of the subordinated debt to the contrary, allow for permitted payments of accrued interest and scheduled principal (but no prepayments or accelerated payments) on such Subordinated Debt prior to notice from Agent of the occurrence of an Event of Default on a schedule no faster than a three year, straight line amortization of principal of the Subordinated Debt or (2) if such Subordinated Debt was incurred other than in connection with an Acceptable Acquisition, notwithstanding any terms of the subordinated debt to the contrary, allow for permitted payments of accrued interest only (and no principal payments, prepayments or accelerated payments) on such Subordinated Debt prior to notice from Agent of the occurrence of an Event of Default, and (B) after notice from Agent of the occurrence of an Event of Default, terminate all payments of principal and interest on the Subordinated Debt until Borrower's Obligations are paid in full and shall otherwise prohibit the holder of such Subordinated Debt from taking any action to enforce the Subordinated Debt obligations against Borrower or any other Obligor for a one year period following such notice. (b) Limitations on Liens. The Borrower will not create, incur, assume or suffer to exist, and will not cause or permit any Subsidiary of the Borrower to create, incur, assume or suffer to exist, any Lien on any of its Property, assets or revenues other than: (i) Liens presently in existence which are described on Schedule 6.11 attached hereto; (ii) Pledges or deposits in connection with or to secure workmen's compensation, unemployment insurance, pension or other employee benefits; (iii) Purchase money Liens incurred to secure Indebtedness permitted under Section 7.2(a)(iii), provided that such Lien shall attach only to the Property acquired in connection with such Indebtedness; (iv) Any Lien renewing, extending or refunding any Lien permitted hereunder, provided that the principal amount of Indebtedness secured -45- 46 by such Lien is not increased and such Lien is not extended to cover any other Property or assets of the Borrower or any Subsidiary of the Borrower; (v) Subject to Section 7.1(d)(i), Liens for taxes, assessments or governmental charges or levies on the income, Property or assets of the Borrower or any Subsidiary of the Borrower if the same are not yet due and payable or are being contested in good faith and by appropriate proceedings diligently conducted and for which adequate reserves in form and amount satisfactory to Agent and the Lenders are provided; and (vi) Statutory liens for amounts not yet due and payable or which are being contested in good faith and by appropriate proceedings diligently conducted and for which adequate reserves in form and amount satisfactory to Agent and the Lenders are provided. (c) Sale of Property. Neither the Borrower nor any Subsidiary of the Borrower will sell, lease, transfer or otherwise dispose of any Property or assets of the Borrower or such Subsidiary of the Borrower, as the case may be, except in the ordinary course of business. (d) Mergers and Consolidations. Neither the Borrower nor any Subsidiary of the Borrower will merge or consolidate with any other Person or sell, transfer or convey all or a substantial part of its Property or assets to any Person, except for Acquisitions permitted under Section 7.2(e). (e) Acquisitions; Subsidiaries. The Borrower will not, and will not cause or permit any Subsidiary to, make or suffer to exist any Acquisition of any Person, except Acceptable Acquisitions. If at any time after the date hereof Borrower shall create any new Subsidiary, whether in connection with an Acceptable Acquisition or otherwise, Borrower shall give Lender fifteen (15) Business Days' prior written notice thereof, and Borrower shall (w) cause such Subsidiary to execute and deliver to Agent for the benefit of each of the Lenders a Subsidiary Guaranty of all of Borrower's Obligations, (x) cause such Subsidiary to grant a security interest pursuant to a Subsidiary Security Agreement in all of its assets of a type listed in Schedule 5 hereto, (y) cause such Subsidiary to pledge all of the issued and outstanding stock of any Subsidiary to Agent for the benefit of each of the Lenders pursuant to a Subsidiary Pledge Agreement, and deliver to Agent collateral schedules, stock powers and other pledge documents in form and substance satisfactory to Agent and the Required Lenders, and (z) pledge all of the issued and outstanding stock of such Subsidiary to Agent for the benefit of each of the Lenders pursuant to a Pledge Agreement, and deliver to Agent collateral schedules, stock powers and other pledge documents in form and substance satisfactory to Agent and the Required Lenders. Borrower further agrees to execute or cause any such Subsidiary to execute such amendments to this Agreement and to the other Transaction Documents or such additional agreements as may be required by Agent and the Lenders to satisfy such obligations. -46- 47 (f) Fiscal Year. Neither Borrower nor any Subsidiary of the Borrower will change its fiscal year. (g) Stock Redemptions and Distributions. The Borrower will not make or declare or incur any liability to make any Distribution in respect of the capital stock of the Borrower. (h) Transactions with Related Parties. Except as disclosed in Schedule 7.2(h) attached hereto, neither Borrower nor any Subsidiary of the Borrower will, directly or indirectly, engage in any material transaction, in the ordinary course of business or otherwise, with any Related Party unless such transaction is upon fair market terms, is not disadvantageous in any material respect to the Lenders and has been approved by a majority of the disinterested directors of the Borrower or such Subsidiary of the Borrower, as the case may be (or, if none of such directors are disinterested, by a majority of the directors), as being in the best interests of the Borrower or such Subsidiary of the Borrower, as the case may be. In addition, neither the Borrower nor any Subsidiary of the Borrower shall (i) transfer any Property or assets to any Related Party for other than its fair market value or (ii) purchase or sign any agreement to purchase any stock or other securities of any Related Party (whether debt, equity or otherwise), underwrite or Guarantee the same, or otherwise become obligated with respect thereto. (i) Capital Expenditures. Neither Borrower nor any Subsidiary of the Borrower will make any capital expenditures or enter into any Capitalized Leases which in the aggregate (for the Borrower and all Subsidiaries of the Borrower) exceeds $10,000,000.00 during any fiscal year without the prior written consent of the Required Lenders. (j) Advancing or Guaranteeing Credit. Neither Borrower nor any Subsidiary of the Borrower will become or be a guarantor or surety of, or otherwise become or be responsible in any manner with respect to, any undertaking of another except for the Subsidiary Guaranties of Borrower's Obligations. (k) Loans and Investments. Neither Borrower nor any Subsidiary of the Borrower will make any loans or advances or extensions of credit to purchase any stocks, bonds, notes, debentures or other securities of, make any expenditures on behalf of, or in any manner assume liability (direct, contingent or otherwise) for the Indebtedness of any Person, except for Permitted Investments, and except for loans to employees of Borrower and its Subsidiaries not to exceed $1,000,000.00 in the aggregate to enable such employees to make investments in Borrower's stock option plan; provided, however, Loans to employees existing on the books of a newly acquired Subsidiary as an Acceptable Acquisition, in order to grant key employees an equity interest in such Subsidiary (i.e. when the employee loan is a non-cash item and is offset on the balance sheet by a corresponding deferred compensation liability for the same amount) shall be excluded from this limitation. (l) Dissolution or Liquidation. Borrower will not seek or permit the dissolution or liquidation of the Borrower in whole or in part. -47- 48 (m) Operating Leases. Neither Borrower nor any Subsidiary of the Borrower will enter into or permit to remain in effect any agreements to rent or lease (as lessee) any real or personal property (other than Capitalized Leases) for initial terms (including options to renew or extend any term, whether or not exercised) of more than one (1) year which in the aggregate (for the Borrower and all Subsidiaries of the Borrower) provide for payments, which at any time when added to all of the then existing indebtedness of the categories described in Section 7.2(a)(iii) are in excess of $25,000,000.00 during any consecutive twelve-month (12-month) period. (n) Change in Nature of Business. Neither Borrower nor any Subsidiary of the Borrower will make any material change in the nature of its business. (o) Pension Plans. Neither Borrower nor any Subsidiary of Borrower shall (a) permit any condition to exist in connection with any Pension Plan which might constitute grounds for the PBGC to institute proceedings to have such Pension Plan terminated or a trustee appointed to administer such Pension Plan or (b) engage in, or permit to exist or occur, any other condition, event or transaction with respect to any Pension Plan which could result in the incurrence by Borrower or any Subsidiary of the Borrower of any material liability, fine or penalty. Neither Borrower nor any Subsidiary of the Borrower shall become obligated to contribute to any Pension Plan or Multiemployer Plan other than any such plan or plans in existence on the date hereof. (p) Management Fees. Neither Borrower nor any Subsidiary of Borrower will pay any management fees, consulting fees or similar fees to any Related Parties without the prior written consent of the Required Lenders, except that Borrower or its Subsidiaries may pay consulting fees or other similar fees incurred in connection with Acceptable Acquisitions provided no Default or Event of Default is then existing or would occur on a pro forma basis as the result of Borrower's or any such Subsidiary's payment or agreement to pay such amounts and further provided that such fees shall not exceed the lesser of $250,000.00 in the aggregate for any single Acceptable Acquisition or $750,000.00 in the aggregate for all Acceptable Acquisitions in any fiscal year. 7.3 Use of Proceeds. (a) The Borrower agrees that the proceeds of the Reducing Revolving Loans hereunder will be used solely for the Borrower's working capital and general corporate purposes and for financing Acceptable Acquisitions; and (b) None of such proceeds will be used in violation of any applicable law or regulation or to purchase or carry "margin stock" within the meanings of Regulation U of The Board of Governors of the Federal Reserve System, as amended, or to extend credit to others for the purpose of purchasing or carrying margin stock, or to refund or repay indebtedness originally incurred for such purpose. -48- 49 SECTION 8. EVENTS OF DEFAULT. If any of the following (each of the following herein sometimes called an "Event of Default") shall occur and be continuing: 8.1 Borrower shall fail to pay any of the Borrower's Obligations when the same shall become due and payable, whether by reason of demand, acceleration, mandatory prepayment or otherwise; 8.2 Any representation or warranty of the Borrower made in this Agreement, in any other Transaction Document or in any certificate, agreement, instrument or statement furnished or made or delivered pursuant hereto or thereto or in connection herewith or therewith, shall prove to have been untrue or incorrect in any material respect when made or effected; 8.3 Borrower shall fail to perform or observe any term, covenant or provision contained in Section 7.1(a), Section 7.1(c), Section 7.1(i), Section 7.2 or Section 7.3; 8.4 Borrower shall fail to perform or observe any term or provision contained in Section 7.1(l) and such failure shall remain unremedied for five (5) days after written notice thereof shall have been given to the Borrower by Agent or any of the Lenders; 8.5 Borrower shall fail to perform or observe any other term, covenant or provision contained in this Agreement and any such failure shall remain unremedied for thirty (30) days after written notice thereof shall have been given to the Borrower by Agent or any of the Lenders; 8.6 This Agreement or any of the other Transaction Documents shall at any time for any reason cease to be in full force and effect or shall be declared to be null and void by a court of competent jurisdiction, or if the validity or enforceability thereof shall be contested or denied by the Borrower, or if the transactions completed hereunder or thereunder shall be contested by the Borrower or if the Borrower shall deny that it has any or further liability or obligation hereunder or thereunder; 8.7 Borrower, any Subsidiary of the Borrower or any other Obligor shall (i) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code or any other federal, state or foreign bankruptcy, insolvency, receivership, liquidation or similar law, (ii) consent to the institution of, or fail to contravene in a timely and appropriate manner, any such proceeding or the filing of any such petition, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator or similar official of itself, himself or herself or of a substantial part of its, his or her Property or assets, (iv) file an answer admitting the material allegations of a petition filed against itself, himself or herself in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) become unable, admit in writing its, his or her inability or fail generally to pay its, his or her debts as they become due or (vii) take any corporate or other action for the purpose of effecting any of the foregoing; -49- 50 8.8 An involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Borrower, any Subsidiary of the Borrower or any other Obligor, or of a substantial part of the Property or assets of the Borrower, any Subsidiary of the Borrower or any other Obligor, under Title 11 of the United States Code or any other federal, state or foreign bankruptcy, insolvency, receivership, liquidation or similar law, (ii) the appointment of a receiver, trustee, custodian, sequestrator or similar official of the Borrower, any Subsidiary of the Borrower or any other Obligor or of a substantial part of the Property or assets of the Borrower, any Subsidiary of the Borrower or any other Obligor or (iii) the winding-up or liquidation of the Borrower, any Subsidiary of the Borrower or any other Obligor; and such proceeding or petition shall continue undismissed for sixty (60) consecutive days or an order or decree approving or ordering any of the foregoing shall continue unstayed and in effect for sixty (60) consecutive days; 8.9 Any "Event of Default" (as defined therein) shall occur under or within the meaning of the Security Agreement; 8.10 Any "Event of Default" (as defined therein) shall occur under or within the meaning of any Pledge Agreement; 8.11 Any event of default shall occur under the terms of any Letter of Credit Application; 8.12 Any event of default shall occur under the terms of the Trademark Assignment; 8.13 Any of the Subsidiary Guaranties shall at any time for any reason cease to be in full force and effect or shall be declared to be null and void by a court of competent jurisdiction, or if the validity or enforceability thereof shall be contested by or denied by the Subsidiary executing any such Subsidiary Guaranty, or if any such Subsidiary shall deny that it has any further liability or obligation thereunder; 8.14 Any "Event of Default" (as defined therein) shall occur under or within the meaning of any of the Subsidiary Security Agreements or any of the Subsidiary Pledge Agreements; 8.15 Borrower, any Subsidiary of the Borrower or any other Obligor shall be declared by Agent or any of the Lenders to be in default (beyond any applicable cure or grace period, if any) on, or pursuant to the terms of, (1) any other present or future obligation to Agent or any of the Lenders, including, without limitation, any other loan, line of credit, revolving credit, guaranty or letter of credit reimbursement obligation, or (2) any other present or future agreement purporting to convey to any such Lender or to Agent a Lien upon any Property or assets of the Borrower, such Subsidiary of the Borrower or such other Obligor, as the case may be; -50- 51 8.16 Borrower, any Subsidiary of the Borrower or any other Obligor shall fail (and such failure shall not have been cured or waived) to perform or observe any term, provision or condition of, or any other default or event of default shall occur under, any agreement, document or instrument evidencing, securing or otherwise relating to any outstanding Indebtedness of the Borrower, such Subsidiary of the Borrower or such other Obligor, as the case may be, for borrowed money (other than the Borrower's Obligations) in a principal amount in excess of One Hundred Thousand Dollars ($100,000.00), if the effect of such failure or default is to cause or permit such Indebtedness to be declared to be due and payable or otherwise accelerated, or to be required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; 8.17 A default or event of default shall occur and be continuing under any of the terms of any agreement, whether executed now or hereafter, to provide the Borrower with any interest rate swap, interest rate cap or other interest hedge, including, but not limited to, any such agreements to finance any such arrangement; 8.18 Borrower, any Subsidiary of the Borrower or any other Obligor shall have a judgment entered against it, him or her by a court having jurisdiction in the premises in an amount of One Hundred Thousand Dollars ($100,000.00) or more and such judgment shall not be appealed in good faith or satisfied by the Borrower, such Subsidiary of the Borrower or such other Obligor, as the case may be, within thirty (30) days after the entry of such judgment; THEN, and in each such event (other than an event described in Sections 8.7 or 8.8), Agent may, or if requested in writing by the Required Lenders shall, declare that the obligations of the Lenders to make Loans and of the Agent to issue Letters of Credit under this Agreement have terminated, whereupon such obligations of Agent and Lenders shall be immediately and forthwith terminated, and Agent may further, with the consent of the Required Lenders, or if requested in writing by the Required Lenders shall further, declare on behalf of each of the Lenders that the entire outstanding principal balance of and all accrued and unpaid interest on the Notes and all of the other Borrower's Obligations are forthwith due and payable, whereupon all of the unpaid principal balance of and all accrued and unpaid interest on the Notes and all such other Borrower's Obligations shall become and be immediately due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower, and Agent and the Lenders may exercise any and all other rights and remedies which any of them may have under any of the other Transaction Documents or under applicable law; provided, however, that upon the occurrence of any event described in Sections 8.7 or 8.8, Lenders' obligations to make Loans and Agent's obligation to issue Letters of Credit under this Agreement shall automatically terminate and the entire outstanding principal balance of and all accrued and unpaid interest on the Notes issued under this Agreement and all other Borrower's Obligations shall automatically become immediately due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower, and Agent and the Lenders may exercise any and all other rights and remedies which any of them may have under any of the other Transaction Documents or under applicable law. Following acceleration of Borrower's Obligations hereunder as set forth above, Agent may, or if requested in writing by the Required Lenders and provided with the indemnity -51- 52 required under Section 9.6 shall, proceed to enforce any remedy then available to Agent or any of the Lenders under any applicable law, including, without limitation, all rights granted to Agent hereunder, under the Subsidiary Guaranties, the Security Agreement, the Trademark Assignment, the Pledge Agreements, any of the Subsidiary Security Agreements, any of the Subsidiary Pledge Agreements, or any Letter of Credit Application, and the rights and remedies available to a secured party under the Uniform Commercial Code as in effect in the State of Missouri. Upon the occurrence of any Event of Default, Agent will have the right, in addition to all other rights and remedies available to Agent and the Lenders under this Agreement or under the other Loan Documents, after oral or written notice is sent to the Borrower, to take possession of, preserve and care for the Collateral, to execute and/or endorse as the Borrower's agent any bills of sale or documents, instruments or chattel paper in or pertaining to the Collateral, to notify Account Debtors and obligors on documents, Accounts and instruments included in the Collateral to make payment directly to Agent, to take control of all of the Borrower's cash, to collect and receive funds generated by the Collateral, including proceeds or refunds from insurance, or as a result of claims for the damage, loss, or destruction of the Collateral, and use the same to reduce any part of the obligations. The Agent shall give notice of a Default to Borrower promptly upon being requested to do so by any Lender and shall thereupon notify all of the Lenders thereof. Following any Default or Event of Default, all payments and other amounts received by Agent and/or any of the Lenders, whether voluntary or involuntary, including but not limited to any proceeds of any collateral, any right of offset or otherwise, shall be shared among the Lenders in accordance with their Pro Rata Shares of the outstanding principal indebtedness under all of the Reducing Revolver Loans and Letter of Credit obligations then outstanding of Borrower. Such application shall be made first, to any costs or expenses of Agent or any of the Lenders incurred in connection with the collection of such proceeds, second, to any accrued and unpaid fees due hereunder or under any of the other Transaction Documents, third, to any and all accrued and unpaid interest on any of the Loans, fourth, to collateralize any outstanding Letters of Credit pursuant to Section 3.3(e) herein, and fifth, to the unpaid principal amounts of any of the Loans outstanding hereunder and under the other Transaction Documents. SECTION 9. THE AGENT 9.1 Appointment and Authorization. Each Lender irrevocably appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement, the Notes and the other Transaction Documents as are delegated to the Agent by the terms hereof or thereof, together with all such powers as may be reasonably incidental thereto. 9.2 Agent and Affiliates. The Agent shall have the same rights and powers under this Agreement as any other Lender and may exercise or refrain from exercising the same as though it were not the Agent, and the Agent and its affiliates may accept deposits from, lend -52- 53 money to and generally engage in any kind of business with Borrower or any of its Subsidiaries or Affiliates as if it were not the Agent hereunder. 9.3 Action by Agent. The obligations of the Agent hereunder are only those expressly set forth herein. Without limiting the generality of the foregoing, the Agent shall not be required to take any action with respect to any Default or Event of Default, except as expressly provided in Section 8. 9.4 Consultation with Experts. The Agent may consult with legal counsel, independent certified public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or other experts. 9.5 Liability of Agent. Neither the Agent nor any of its directors, officers, employees, agents or advisors shall be liable for any action taken or not taken by it in connection herewith (i) with the consent or at the request of the requisite percentage in interest of the Lenders set forth herein or (ii) in the absence of its own gross negligence or willful misconduct as determined by a court of competent jurisdiction. Neither the Agent nor any of its directors, officers, employees, agents or advisors shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement or any Loan hereunder; (ii) the performance or observance of any of the covenants or agreements of Borrower; (iii) the satisfaction of any condition specified in Section 4, except receipt of items required to be delivered to the Agent; or (iv) the validity, effectiveness or genuineness of this Agreement, the Notes or any of the other Transaction Documents. The Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement or other writing (which may be a bank wire, telex, telecopy or similar writing) believed by it to be genuine or to be signed by the proper party or parties. 9.6 Indemnification. Notwithstanding any other provision contained in this Agreement to the contrary, to the extent Borrower fails to reimburse the Agent pursuant to Section 10.3, Section 10.4 or Section 10.5, or if any Default or Event of Default shall occur under this Agreement, the Lenders shall ratably in accordance with their respective Pro Rata Shares, indemnify the Agent and hold it harmless from and against any and all liabilities, losses, costs and/or expenses, including, without limitation, any liabilities, losses, costs and/or expenses arising from the failure of any Lender to perform its obligations hereunder or in respect of this Agreement, and also including, without limitation, reasonable attorneys' fees and expenses, which the Agent may incur, directly or indirectly, in connection with this Agreement, the Notes or any of the other Transaction Documents, or any action or transaction related hereto or thereto; provided only that the Agent shall not be entitled to such indemnification for any losses, liabilities, costs and/or expenses directly and solely resulting from its own gross negligence or willful misconduct as determined by a court of competent jurisdiction. This indemnity shall be a continuing indemnity, contemplates all liabilities, losses, costs and expenses related to the execution, delivery and performance of this Agreement, the Notes and the other Transaction Documents, and shall survive the satisfaction and payment of the Loans and the termination of this Agreement. -53- 54 9.7 Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the 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 any action under this Agreement. 9.8 Resignation of Agent. The Agent may resign at any time by giving written notice thereof to the Lenders and Borrower. Upon any such resignation, Lenders shall have the right to appoint a successor Agent with the prior consent of Borrower, which consent shall not be unreasonably withheld, and which successor Agent shall be a commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $100,000,000.00. If no successor Agent shall have been so appointed by Lenders, and shall have accepted such appointment, within thirty (30) days after the retiring Agent's giving of notice of resignation, then the Agent shall, on behalf of all of the Lenders, appoint a successor Agent with the prior consent of Borrower, which consent shall not be unreasonably withheld, and which successor Agent shall be a commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $100,000,000.00. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all of the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from all of its duties and obligations under this Agreement. After any retiring Agent's resignation as Agent, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. 9.9 Removal of Agent. The Agent may be removed at any time, for or without cause, by an instrument or instruments in writing executed by the Required Lenders and delivered to the Agent with a copy to Borrower, specifying the removal and the date when it shall take effect. Upon any such removal, Lenders shall have the right to appoint a successor Agent with the prior consent of Borrower, which consent shall not be unreasonably withheld, and which successor Agent shall be a commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $100,000,000.00. If no successor Agent shall have been so appointed by Lenders, and shall have accepted such appointment, within thirty (30) days after the date of removal of the Agent, then the Required Lenders shall, on behalf of all of the Lenders, appoint a successor Agent with the prior consent of Borrower, which consent shall not be unreasonably withheld, and which successor Agent shall be a commercial bank organized under the laws of the United States of America or of any state thereof and having a combined capital and surplus of at least $100,000,000.00. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the removed Agent, and the removed Agent shall be discharged from all of its duties and obligations under this Agreement. After any such removal, the -54- 55 provisions of this Section 9 shall inure to such former Agent's benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. 9.10 Agent's Fee. Borrower will pay to Agent for its own account on the date hereof and on each anniversary of the date hereof during the Term, an Agent's Fee in the amount agreed to between Borrower and Agent. SECTION 10. GENERAL. 10.1 No Waiver. No failure or delay by Agent or any of the Lenders in exercising any right, remedy, power or privilege hereunder or under any other Transaction Document shall operate as a waiver thereof; nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The remedies provided herein and in the other Transaction Documents are cumulative and not exclusive of any remedies provided by law. Nothing herein contained shall in any way affect the right of Agent or any of the Lenders to exercise any statutory or common law right of banker's lien or setoff. 10.2 Right of Setoff. Upon the occurrence and during the continuance of any Event of Default, each of the Lenders is hereby authorized at any time and from time to time, without notice to the Borrower (any such notice being expressly waived by the Borrower) and to the fullest extent permitted by law, to setoff and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by any such Lender and any and all other indebtedness at any time owing by any such Lender to or for the credit or account of the Borrower against any and all of the Borrower's Obligations irrespective of whether or not Agent or any such Lender shall have made any demand hereunder or under any of the other Transaction Documents and although such obligations may be contingent or unmatured. Such Lender agrees to promptly notify Borrower after any such setoff and application made by such Lender, provided, however, that the failure to give such notice shall not affect the validity of such setoff and application. The rights of Lenders under this Section 10.2 are in addition to any other rights and remedies (including, without limitation, other rights of setoff) which Lenders may have. Nothing contained in this Agreement or any other Transaction Document shall impair the right of each of the Lenders to exercise any right of setoff or counterclaim they may have against the Borrower and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower unrelated to this Agreement or the other Transaction Documents. 10.3 Cost and Expenses. Borrower agrees, whether or not any Loan is made hereunder, to pay Agent upon demand (i) all reasonable out-of-pocket costs and expenses and all Attorneys' Fees of Agent in connection with the preparation, documentation, negotiation, execution and administration of this Agreement, the Notes and the other Transaction Documents, (ii) all reasonable recording, filing and search fees incurred in connection with this Agreement and the other Transaction Documents, (iii) all reasonable out-of-pocket costs and expenses and all Attorneys' Fees of Agent and each of the Lenders in connection with the preparation of any waiver or consent hereunder or any amendment hereof or any Event of Default or alleged Event of Default hereunder, (iv) if an Event of Default occurs, all out-of-pocket costs and expenses and -55- 56 all Attorneys' Fees incurred by Agent and each of the Lenders in connection with such Event of Default and collection and other enforcement proceedings resulting therefrom and (v) all other Attorneys' Fees incurred by Agent and each of the Lenders relating to or arising out of or in connection with this Agreement or any of the other Transaction Documents subsequent to the date hereof. The Borrower further agrees to pay or reimburse Agent and each of the Lenders for any stamp or other taxes which may be payable with respect to the execution, delivery, recording and/or filing of this Agreement, the Notes, the Security Agreement, the Pledge Agreement, the Trademark Assignment, the Subsidiary Guaranties, the Subsidiary Security Agreements, or any of the other Transaction Documents. All of the obligations of the Borrower under this Section 10.3 shall survive the satisfaction and payment of the Borrower's Obligations and the termination of this Agreement. In the event Agent or any Lender claims any amounts pursuant to this Section 10.3, Agent or such Lender, as the case may be, shall provide to Borrower an itemized statement of amounts claimed. 10.4 Environmental Indemnity. The Borrower hereby agrees to indemnify Agent and each of the Lenders and hold Agent and each of the Lenders harmless from and against any and all losses, liabilities, damages, injuries, costs, expenses and claims of any and every kind whatsoever (including, without limitation, court costs and attorneys' fees and expenses) which at any time or from time to time may be paid, incurred or suffered by, or asserted against, Agent or any of the Lenders for, with respect to or as a direct or indirect result of the violation by the Borrower or any Subsidiary of the Borrower of any Environmental Laws; or with respect to, or as a direct or indirect result of the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission or release from, properties utilized by the Borrower and/or any Subsidiary of the Borrower in the conduct of its businesses into or upon any land, the atmosphere or any watercourse, body of water or wetland, of any Hazardous Materials or any other hazardous or toxic waste, substance or constituent or other substance (including, without limitation, any losses, liabilities, damages, injuries, costs, expenses or claims asserted or arising under the Environmental Laws); and the provisions of and undertakings and indemnification set out in this Section 10.4 shall survive the satisfaction and payment of the Borrower's Obligations and the termination of this Agreement. 10.5 General Indemnity. In addition to the payment of expenses pursuant to Section 10.3, whether or not the transactions contemplated hereby shall be consummated, the Borrower hereby agrees to indemnify, pay and hold Agent, each of the Lenders and any other holder(s) of the Notes, and the officers, directors, employees, agents and affiliates of any of them (collectively, the "Indemnitees") harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel for such Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not such Indemnitees shall be designated a party thereto), that may be imposed on, incurred by or asserted against the Indemnitees, in any manner relating to or arising out of this Agreement, any of the other Transaction Documents or any other agreement, document or instrument executed and delivered by the Borrower or any other Obligor in connection herewith or therewith, the statements contained in any commitment letters delivered by Agent or any of the Lenders, the Lenders' -56- 57 agreements to make the Loans hereunder or the use or intended use of the proceeds of any Loan hereunder (collectively, the "indemnified liabilities"); provided that the Borrower shall have no obligation to an Indemnitee hereunder with respect to indemnified liabilities arising from the gross negligence or willful misconduct of that Indemnitee as determined by a court of competent jurisdiction. To the extent that the undertaking to indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, the Borrower shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all indemnified liabilities incurred by the Indemnitees or any of them. The provisions of the undertakings and indemnification set out in this Section 10.5 shall survive satisfaction and payment of the Borrower's Obligations and the termination of this Agreement. 10.6 Authority to Act. Agent and the Lenders shall be entitled to act on any notices and instructions (telephonic or written) believed by Agent or any such Lender to have been delivered by any Person authorized to act on behalf of the Borrower pursuant hereto, regardless of whether such notice or instruction was in fact delivered by a Person authorized to act on behalf of the Borrower, and the Borrower hereby agrees to indemnify Agent and each of the Lenders and hold Agent and each of the Lenders harmless from and against any and all losses and expenses, if any, ensuing from any such action, other than for such losses or expenses directly caused by the gross negligence or willful misconduct of the Agent or such Lender, as determined by a court of competent jurisdiction. 10.7 Notices. Any notice, request, demand, consent, confirmation or other communication hereunder shall be in writing and delivered in person or sent by telegram, telex, telecopy or registered or certified mail, return receipt requested and postage prepaid, if to the Borrower, in care of StaffMark, Inc. at 302 East Millsap Road, Fayetteville, Arkansas 72702, Attention: Terry C. Bellora, Chief Financial Officer, if to Agent, at 721 Locust Street, St. Louis, Missouri 63101, Attention: Jeffrey A. Nelson, Vice President, or if to Lenders, at their respective addresses or telecopy numbers set forth on the signature pages of this Agreement, or at such other address as any party may designate as its address for communications hereunder by notice so given. Such notices shall be deemed effective on the day on which delivered or sent if delivered in person or sent by telegram, telex or telecopy, or on the third (3rd) Business Day after the day on which mailed, if sent by registered or certified mail. 10.8 CONSENT TO JURISDICTION. BORROWER IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF ANY MISSOURI STATE COURT OR ANY UNITED STATES OF AMERICA COURT SITTING IN THE EASTERN DISTRICT OF MISSOURI, AS AGENT MAY ELECT, IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT TO THE EXTENT SUBJECT MATTER JURISDICTION EXISTS. THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT TO SUCH SUIT, ACTION OR PROCEEDING MAY BE HELD AND DETERMINED IN ANY OF SUCH COURTS. THE BORROWER IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH THE BORROWER MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF -57- 58 ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT, AND THE BORROWER FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. THE BORROWER HEREBY EXPRESSLY WAIVES ALL RIGHTS OF ANY OTHER JURISDICTION WHICH THE BORROWER MAY NOW OR HEREAFTER HAVE BY REASON OF ITS PRESENT OR SUBSEQUENT DOMICILE. THE BORROWER AUTHORIZES THE SERVICE OF PROCESS UPON THE BORROWER BY REGISTERED MAIL SENT TO THE BORROWER AT ITS ADDRESS SET FORTH IN SECTION 10.7. 10.9 Agent's and Lenders' Books and Records. Agent's and Lenders' books and records showing the account between the Borrower and Agent or any of the Lenders shall be admissible in evidence in any action or proceeding and shall constitute prima facie proof thereof. 10.10 Governing Law; Amendments and Waivers. This Agreement, the Notes, the Security Agreement, the Pledge Agreement, the Trademark Assignment, the Subsidiary Guaranties, the Subsidiary Security Agreements, and all of the other Transaction Documents shall be governed by and construed in accordance with the internal laws of the State of Missouri. Any provision of this Agreement, the Notes, the Security Agreement, the Pledge Agreement, the Trademark Assignment, the Subsidiary Guaranties, the Subsidiary Security Agreements, or any of the other Transaction Documents may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by Borrower and the Required Lenders (and, if the rights or duties of the Agent in its capacity as Agent are affected thereby, by the Agent); provided that no such amendment or waiver shall, unless signed by all of the Lenders, (i) increase the Reducing Revolver Commitment of any Lender, (ii) reduce the principal amount of or rate of interest on any Loan or any fees hereunder, (iii) postpone the date fixed for any payment of principal of or interest on any Loan or any fees hereunder or any scheduled reduction in the Reducing Revolver Commitment of the several Lenders as set forth in Section 3.1(a), (iv) release any collateral security or any guaranty for any Loan hereunder, (v) increase the multiple against Borrower's Consolidated Proforma EBITDA Cash Flow above four hundred percent (400%) as set forth in Section 3.1(a) herein, (vi) amend or waive any Event of Default, or (vii) change the percentage in the definition of Required Lenders, or (v) amend this Section 10.10. 10.11 Successors and Assigns; Participations. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that Borrower may not assign or otherwise transfer any of its rights or delegate any of its obligations under this Agreement. Any of the Lenders may sell participations in its Notes and its rights under this Agreement, the other Transaction Documents and in the Collateral in whole or in part to any commercial bank organized under the laws of the United States or any state thereof without the prior consent of Borrower so long as each agreement pursuant to which any such participation is granted provides that no such participant shall have any rights under this Agreement or any other Transaction Document (the participants' rights against the Lender granting its participation to be those set forth in the Participation Agreement between the -58- 59 participant and such Lender), and such selling Lender shall retain the sole right to approve or disapprove any amendment, modification or waiver of any provision of this Agreement or any of the other Transaction Documents. Each such participant shall be entitled to the benefits of the yield protection provisions hereof to the extent any Lender would have been so entitled had not such participation been sold or assignment made. (b) Any Lender which, in accordance with Section 10.11(a), grants a participation in any of its rights under this Agreement or its Notes shall give prompt notice describing the details thereof to the Agent and Borrower. (c) Unless otherwise agreed to by Borrower in writing, no Lender shall, as between Borrower and that Lender, be relieved of any of its obligations under this Agreement as a result of such Lender's granting of a participation in all or any part of such Lender's Notes or all or any part of such Lender's rights under this Agreement. 10.12 Assignment Agreements. Each Lender may, upon prior notice to and consent of Borrower and Agent, which consent shall not be unreasonably withheld, from time to time sell or assign to other banking institutions rated "B" or better by Thompson Agent Watch Service a pro rata part of all of the indebtedness evidenced by the Notes then owed by it together with an equivalent proportion of its obligation to make Loans hereunder and the credit risk incidental to the Letters of Credit pursuant to an Assignment Agreement substantially in the form of Exhibit F attached hereto, executed by the assignor, the assignee and the Borrower, which agreements shall specify in each instance the portion of the indebtedness evidenced by the Notes which is to be assigned to each such assignor and the portion of the Loan Commitments of the assignor and the credit risk incidental to the Letters of Credit (which portions shall be equivalent) to be assumed by it (the "Assignment Agreements"), provided that nothing herein contained shall restrict, or be deemed to require any consent as a condition to, or require payment of any fee in connection with, any sale, discount or pledge by any Lender of any Note or other obligation hereunder to a federal reserve bank. Any such portion of the indebtedness assigned by any Lender pursuant to this Section 10.12 shall not be less than $5,000,000.00. Upon the execution of each Assignment Agreement by the assignor, the assignee and the Borrower and consent thereto by the Agent (i) such assignee shall thereupon become a "Lender" for all purposes of this Agreement with Loan Commitments in the amount set forth in such Assignment Agreement and with all the rights, powers and obligations afforded a Lender hereunder, (ii) the assignor shall have no further liability for funding the portion of its Loan Commitments assumed by such other Lender and (iii) the address for notices to such Lender shall be as specified in the Assignment Agreement, and the Borrower shall, in exchange for the cancellation of the Notes held by the assignor Lender, execute and deliver Notes to the assignee Lender in the amount of its Loan Commitments and new Notes to the assignor Lender in the amount of its Loan Commitments after giving effect to the reduction occasioned by such assignment, all such Notes to constitute "Notes" for all purposes of this Agreement, and there shall be paid to the Agent, as a condition to such assignment, an administration fee of $2,000.00 plus any out-of-pocket costs and expenses incurred by it in effecting such assignment, such fee to be paid by the assignor or the assignee as they may mutually agree, but under no circumstances shall any portion of such fee be payable by or charged to the Borrower. -59- 60 10.13 References; Headings for Convenience. Unless otherwise specified herein, all references herein to Section numbers refer to Section numbers of this Agreement, all references herein to Exhibits A, B, C, D, E, F, G and H refer to annexed Exhibits A, B, C, D, E, F, G and H which are hereby incorporated herein by reference and all references herein to Schedules 5, 6.5, 6.6, 6.8, 6.10, 6.11, 6.14, 6.15, 7.1(k)(viii) and 7.2(h) refer to annexed Schedules 5, 6.5, 6.6, 6.8, 6.10, 6.11, 6.14, 6.15, 7.1(k)(viii) and 7.2(h) which are hereby incorporated herein by reference. The Section headings are furnished for the convenience of the parties and are not to be considered in the construction or interpretation of this Agreement. 10.14 Subsidiary Reference. Any reference herein to a Subsidiary or Consolidated Subsidiary of the Borrower, and any financial definition, ratio, restriction or other provision of this Agreement which is stated to be applicable to the Borrower and its Subsidiaries or Consolidated Subsidiaries or which is to be determined on a "consolidated" or "consolidating" basis, shall apply only to the extent the Borrower has any Subsidiaries or Consolidated Subsidiaries and, where applicable, to the extent any such Subsidiaries are consolidated with the Borrower for financial reporting purposes. 10.15 Binding Agreement. This Agreement shall be binding upon and inure to the benefit of the Borrower and its successors and Agent and each of the Lenders and their respective successors and assigns. The Borrower may not assign or delegate any of its rights or obligations under this Agreement. 10.16 NO ORAL AGREEMENTS; ENTIRE AGREEMENT. ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT, INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT, ARE NOT ENFORCEABLE. TO PROTECT THE BORROWER, AGENT AND LENDERS FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS REACHED BY THE BORROWER, AGENT AND LENDERS COVERING SUCH MATTERS ARE CONTAINED IN THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS, WHICH AGREEMENT AND OTHER TRANSACTION DOCUMENTS ARE A COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENTS BETWEEN THE BORROWER, AGENT AND LENDERS, EXCEPT AS THE BORROWER, AGENT AND LENDERS MAY LATER AGREE IN WRITING TO MODIFY THEM. THIS AGREEMENT EMBODIES THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES HERETO AND SUPERSEDES ALL PRIOR AGREEMENTS AND UNDERSTANDINGS (ORAL OR WRITTEN) RELATING TO THE SUBJECT MATTER HEREOF. 10.17 Severability. In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein that may be given effect without the invalid, illegal or unenforceable provision shall not in any way be affected or impaired thereby. -60- 61 10.18 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10.19 Resurrection of the Borrower's Obligations. To the extent that Agent or any of the Lenders receives any payment on account of any of the Borrower's Obligations, and any such payment(s) or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, subordinated and/or required to be repaid to a trustee, receiver or any other Person under any bankruptcy act, state or federal law, common law or equitable cause, then, to the extent of such payment(s) received, the Borrower's Obligations or part thereof intended to be satisfied and any and all Liens upon or pertaining to any Property or assets of the Borrower and theretofore created and/or existing in favor of Agent for the benefit of the Lenders as security for the payment of the Borrower's Obligations shall be revived and continue in full force and effect, as if such payment(s) had not been received by Agent or any such Lender and applied on account of the Borrower's Obligations. 10.20 U. S. Dollars. All currency references set forth herein, in any other Transaction Documents and in any transactions referenced herein or therein shall be denominated in Dollars of the United States of America. -61- 62 IN WITNESS WHEREOF, the parties have executed this Amended and Restated Credit Agreement this 9th day of March, 1998. STAFFMARK, INC. By: --------------------------------- Name: ------------------------------- Title: ------------------------------ Reducing Revolver Commitment: MERCANTILE BANK $73,000,000.00 NATIONAL ASSOCIATION By: --------------------------------- Name: ------------------------------- Title: ------------------------------ Address: 721 Locust Street St. Louis, Missouri 63101 Attention: Mid America Group Telecopy No: 314-425-3859 Reducing Revolver Commitment: DEPOSIT GUARANTY NATIONAL BANK $10,000,000.00 By: --------------------------------- Name: ------------------------------- Title: ------------------------------ Address: 210 E. Capital Street Suite 1180 Jackson, Mississippi 39201 Attention: Steven C. Krohn Telecopy No. ------------------------- -62- 63 Reducing Revolver Commitment: THE FIRST NATIONAL BANK OF CHICAGO $19,500,000.00 By: --------------------------------- Name: ------------------------------- Title: ------------------------------ Address: One First National Plaza 10th Floor Mail Suite 0324 Chicago, Illinois 60670-0324 Attention: Jenny A. Gilpin, VP Telecopy No. (312)732-2991 Reducing Revolver Commitment: FIRST UNION NATIONAL BANK $17,500,000.00 By: --------------------------------- Name: ------------------------------- Title: ------------------------------ Address: One First Union Center 301 South College Street, DC5 Charlotte, North Carolina 28288-0737 Attention: Henry R. Biedrzycki, VP Telecopy No. (704)374-3300 Reducing Revolver Commitment: LASALLE NATIONAL BANK $15,000,000.00 By: --------------------------------- Name: ------------------------------- Title: ------------------------------ Address: One Metropolitan Square 211 North Broadway Suite 2140 St. Louis, Missouri 63102 Attention: Tom Harmon, AVP Telecopy No. (314)621-1612 -63- 64 Reducing Revolver Commitment: BANK OF AMERICA NATIONAL TRUST $15,000,000.00 AND SAVINGS ASSOCIATION By: --------------------------------- Name: ------------------------------- Title: ------------------------------ Address: 231 S. LaSalle Street 6th Floor Chicago, Illinois 60697 Attention: Steven Standbridge, VP Telecopy No. (312)828-1974 MERCANTILE BANK NATIONAL ASSOCIATION, AS AGENT By: --------------------------------- Name: ------------------------------- Title: ------------------------------ Address: 721 Locust Street St. Louis, Missouri 63101 Attention: Mid America Group -64- EX-10.23 3 AMENDMENT NO. 1 TO AMENDED/RESTATED CREDIT AGRMT 1 EXHIBIT 10.23 FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this "First Amendment") is made and entered into as of the 16th day of March, 1998, by and among STAFFMARK, INC., a Delaware corporation (the "Borrower"), MERCANTILE BANK NATIONAL ASSOCIATION, DEPOSIT GUARANTY NATIONAL BANK, THE FIRST NATIONAL BANK OF CHICAGO, FIRST UNION NATIONAL BANK, LASALLE NATIONAL BANK, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION and FLEET NATIONAL BANK (collectively, the "Lenders") and MERCANTILE BANK NATIONAL ASSOCIATION, a national banking association, as agent on behalf of Lenders (in such capacity, the "Agent"). WITNESSETH: WHEREAS, the Borrower, the Agent and the Lenders other than Fleet National Bank ("Fleet") have previously entered into that certain Amended and Restated Credit Agreement dated as of March 9, 1998, as partially assigned to Fleet by Mercantile Bank National Association ("Mercantile") pursuant to an Assignment Agreement dated the date hereof and made by and among Mercantile, Fleet and the Agent (as assigned, the "Credit Agreement"); and WHEREAS, the Borrower has executed and delivered to Lenders, respectively, its Reducing Revolver Notes in the aggregate original principal amount of $150,000,000.00 (collectively, the "Original Notes"); and WHEREAS, the Borrower, Agent and Lenders desire to, among other things, increase the maximum principal amount of Reducing Revolver Loans available to Borrower under the Credit Agreement from $150,000,000.00 to $175,000,000.00 and to amend and restate the Original Notes, all upon the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto mutually promise and agree as follows: 1. The definition of "Reducing Revolver Commitment" in Section 2 of the Credit Agreement hereby is deleted in its entirety and the following is substituted in its place: Reducing Revolver Commitment shall mean, subject to termination or reduction as set forth in Section 3.11 and subject to quarterly reductions required by Section 3.1(a), for each Lender the amount set forth as the Reducing Revolver Commitment of such Lender next to its name on the signature pages of the First Amendment to Amended and Restated Credit Agreement dated as of March 16, 1998, made by and among Borrower, Lenders and Agent (the "First Amendment") 2 or on the signature pages of any subsequent Assignment Agreement to which such Lender is a party. 2. The definition of "Reducing Revolver Notes" in Section 2 of the Credit Agreement hereby is deleted in its entirety and the following is substituted in its place: Reducing Revolver Notes shall mean each of the Reducing Revolver Notes of the Borrower to be executed and delivered to each of the Lenders pursuant to the First Amendment or thereafter pursuant to Section 3.1 herein, as such Notes may from time to time be amended, restated, modified, extended or renewed. 3. Section 3.1(a) of the Credit Agreement hereby is deleted in its entirety and the following is substituted in its place: (a) Subject to the terms and conditions hereof, during the Term of this Agreement, each Lender hereby severally agrees to make such loans (individually, a "Reducing Revolver Loan," and collectively, the "Reducing Revolver Loans") to the Borrower as the Borrower may from time to time request pursuant to Section 3.2(a). The aggregate principal amount of Reducing Revolver Loans which Lenders, cumulatively, shall be required to have outstanding hereunder at any one time, plus the undrawn face amount of Letters of Credit issued by Agent and then outstanding under Section 3.3, shall not exceed the lesser of (i) One Hundred Seventy-Five Million Dollars ($175,000,000.00) (subject to reduction as provided below, the "Total Reducing Revolver Commitment"), or (ii) four hundred percent (400%), (and at all times after March 31, 1999, three hundred fifty percent (350%)) of the amount of Borrower's Consolidated Proforma EBITDA Cash Flow determined as of the most recent fiscal quarter-end. The amount each Lender shall be required to have outstanding hereunder as Reducing Revolver Loans plus their undivided Pro Rata Share participation interest in each Letter of Credit issued by Agent under Section 3.3, shall not exceed, in the aggregate at any one time outstanding, the lesser of (x) the amount of such Lender's Reducing Revolver Commitment, or (y) such Lender's Pro Rata Share multiplied times an amount equal to four hundred percent (400%) (and at all times after March 31, 1999, three hundred fifty percent (350%)) of Borrower's Consolidated Proforma EBITDA Cash Flow determined as of the most recent fiscal quarter-end. Each Reducing Revolver Loan under this Section 3.1 shall be made by the Lenders ratably in proportion to their respective Reducing Revolver Commitments. The Reducing Revolver Loans shall be evidenced by the Reducing Revolver Notes of the Borrower payable by the Borrower to the respective orders of each of the Lenders in the aggregate original principal amount of One Hundred Seventy-Five Million Dollars ($175,000,000.00) and otherwise in the form attached hereto as Exhibit A and incorporated herein by reference (as the same may from time to time be amended, restated, modified, extended or renewed, the "Reducing Revolver Notes"). The Reducing Revolver Notes shall mature on April 1, 2003, unless earlier terminated by acceleration or otherwise upon the occurrence of an Event of Default under this Agreement. Subject to any such earlier maturity by reason of acceleration or otherwise and in addition to any voluntary reduction requested by Borrower pursuant to Section 3.11, the Total Reducing -2- 3 Revolver Commitment of the Lenders shall be reduced by the amount of Five Million Dollars ($5,000,000.00) on the first day of each fiscal quarter commencing with the first such reduction on January 1, 2000 and continuing on the first day of each fiscal quarter thereafter during the Term hereof, with such reductions being applied to the respective Reducing Revolver Commitments of the Lenders in accordance with their Pro Rata Shares thereof. In the event any such quarterly reduction in the Total Reducing Revolver Commitment shall cause the amount of the Total Reducing Revolver Commitment to be decreased below the then outstanding principal amount of all Reducing Revolver Loans to Borrower plus the undrawn face amount of all outstanding Letters of Credit, or in the event any reduction in Borrower's most recent quarter-end Consolidated Proforma EBITDA Cash Flow shall cause the aggregate principal amount of the Reducing Revolver Loans plus the undrawn face amount of all outstanding Letters of Credit to exceed four hundred percent (400%) (and at all times after March 31, 1999, three hundred fifty percent (350%)) of such most recent quarter-end Consolidated Proforma EBITDA Cash Flow, Borrower agrees to pay to Agent for distribution to the Lenders in accordance with their respective Pro Rata Shares of the Reducing Revolver Commitments, the amount by which the aggregate outstanding Reducing Revolver Loans plus the undrawn face amount of all outstanding Letters of Credit then exceeds the lesser of the then available Total Reducing Revolver Commitment or four hundred percent (400%) (and at all times after March 31, 1999, three hundred fifty percent (350%)) of Borrower's most recent quarter-end Consolidated Proforma EBITDA Cash Flow. If the undrawn face amount of all Letters of Credit still exceeds the lesser of the then current Total Reducing Revolver Commitment or four hundred percent (400%) (and at all times after March 31, 1999, three hundred fifty percent (350%)) of the most recent quarter-end Consolidated Proforma EBITDA Cash Flow after repayment in full of all Reducing Revolver Loans under the preceding sentence, Borrower agrees to provide cash collateral in form and substance acceptable to Agent in an amount sufficient to cover such shortfall. Subject to the terms and conditions of this Agreement, the Borrower may borrow, repay and reborrow the amounts available under this Section 3.1. 4. Exhibit A to the Credit Agreement hereby is deleted in its entirety and Exhibit A attached to this First Amendment is substituted in its place. 5. The agreements of Agent and the Lenders as set forth herein are expressly conditioned upon the following: (a) Execution by Borrower of this Agreement and each of the Amended and Restated Reducing Revolver Notes; (b) Execution by Guarantors of the Consent of Guarantors in the form attached to this Agreement; and (c) Delivery to Agent and Lenders of an opinion of Borrower's counsel in form and substance satisfactory to Agent and Lenders relating to the due execution, delivery and enforceability of this Agreement and the other -3- 4 Transaction Documents and such other matters as Agent and Lenders may reasonably require. 6. Borrower hereby represents and warrants to Agent and to Lenders that: a. The execution, delivery and performance by Borrower of this First Amendment and the amended and restated Reducing Revolver Notes are within the corporate powers of Borrower, have been duly authorized by all necessary corporate action and require no action by or in respect of, or filing with, any governmental or regulatory body, agency or official. The execution, delivery and performance by Borrower of this First Amendment and the amended and restated Reducing Revolver Notes do not conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under or result in any violation of, and Borrower is not now in default under or in violation of, the terms of the Certificate of Incorporation or Bylaws of Borrower, any applicable law, any rule, regulation, order, writ, judgment or decree of any court or governmental or regulatory agency or instrumentality, or any agreement or instrument to which Borrower is a party or by which it is bound or to which it is subject; b. This First Amendment and the amended and restated Reducing Revolver Notes have been duly executed and delivered and constitute the legal, valid and binding obligations of Borrower enforceable in accordance with their respective terms; and c. As of the date hereof, all of the covenants, representations and warranties of Borrower set forth in the Credit Agreement are true and correct and no "Event of Default" (as defined therein) under or within the meaning of the Credit Agreement, as hereby amended, has occurred and is continuing. 7. The Credit Agreement, as hereby amended, the Reducing Revolver Notes, as hereby amended and restated, and the other Transaction Documents are and shall remain the binding obligations of Borrower, and except to the extent amended by this First Amendment, all of the terms, provisions, conditions, agreements, covenants, representations, warranties and powers contained in the Credit Agreement, the Reducing Revolver Notes and the other Transaction Documents shall be and remain in full force and effect and the same are hereby ratified and confirmed. This First Amendment amends the Credit Agreement and is not a novation thereof. 8. All references in the Credit Agreement or the other Transaction Documents to "this Agreement" and any other references of similar import shall henceforth mean the Credit Agreement as amended by this First Amendment. 9. This First Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that Borrower may not assign, transfer or delegate any of its rights or obligations hereunder. -4- 5 10. This First Amendment is made solely for the benefit of Borrower, Agent and Lenders as set forth herein, and is not intended to be relied upon or enforced by any other person or entity. 11. ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT, INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT, ARE NOT ENFORCEABLE. TO PROTECT BORROWER, AGENT AND LENDERS FROM ANY MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS REACHED BY BORROWER, AGENT AND LENDERS COVERING SUCH MATTERS ARE CONTAINED IN THIS FIRST AMENDMENT, THE CREDIT AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS, WHICH CONSTITUTE A COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENTS BETWEEN BORROWER, AGENT AND LENDERS EXCEPT AS BORROWER, AGENT AND LENDERS MAY LATER AGREE IN WRITING TO MODIFY. THIS FIRST AMENDMENT, THE CREDIT AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS EMBODY THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES HERETO AND SUPERSEDE ALL PRIOR AGREEMENTS AND UNDERSTANDINGS (ORAL OR WRITTEN) RELATING TO THE SUBJECT MATTER HEREOF. 12. This First Amendment shall be governed by and construed in accordance with the internal laws of the State of Missouri. 13. In the event of any inconsistency or conflict between this First Amendment and the Credit Agreement or the other Transaction Documents, the terms, provisions and conditions of this First Amendment shall govern and control. [SIGNATURES ON FOLLOWING PAGE] -5- 6 IN WITNESS WHEREOF, the parties have caused this First Amendment to Amended and Restated Credit Agreement to be executed and delivered by their duly authorized officers as of the date first above written. STAFFMARK, INC. By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- Reducing Revolver Commitment: MERCANTILE BANK $35,000,000.00 NATIONAL ASSOCIATION By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- Address: 721 Locust Street St. Louis, Missouri 63101 Attention: Mid America Group Telecopy No: (314)425-3859 Reducing Revolver Commitment: DEPOSIT GUARANTY NATIONAL BANK $15,000,000.00 By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- Address: 210 E. Capital Street Suite 1180 Jackson, Mississippi 39201 Attention: Steven C. Krohn, SVP Telecopy No. (601)354-8412 -6- 7 Reducing Revolver Commitment: THE FIRST NATIONAL BANK OF CHICAGO $32,500,000.00 By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- Address: One First National Plaza 10th Floor Mail Suite 0324 Chicago, Illinois 60670-0324 Attention: Jenny A. Gilpin, VP Telecopy No. (312)732-2991 Reducing Revolver Commitment: FIRST UNION NATIONAL BANK $30,000,000.00 By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- Address: One First Union Center 301 South College Street, DC5 Charlotte, North Carolina 28288-0737 Attention: Henry R. Biedrzycki, VP Telecopy No. (704)374-3300 Reducing Revolver Commitment: LASALLE NATIONAL BANK $20,000,000.00 By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- Address: One Metropolitan Square 211 North Broadway Suite 2140 St. Louis, Missouri 63102 Attention: Tom Harmon, AVP Telecopy No. (314)621-1612 -7- 8 Reducing Revolver Commitment: BANK OF AMERICA NATIONAL TRUST $20,000,000.00 AND SAVINGS ASSOCIATION By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- Address: 231 S. LaSalle Street 6th Floor Chicago, Illinois 60697 Attention: Steven Standbridge, VP Telecopy No. (312)828-1974 Reducing Revolver Commitment: FLEET NATIONAL BANK $22,500,000.00 By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- Address: One Federal Street, 4th Floor Boston, Massachusetts 02110 Attention: Deborah Lawrence Telecopy No. (617)346-4667 MERCANTILE BANK NATIONAL ASSOCIATION, as Agent By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- Address: 721 Locust Street St. Louis, Missouri 63101 Attention: Mid America Group -8- EX-10.24 4 AMENDED/RESTATED 1996 STOCK OPTION PLAN 1 Exhibit 10.24 STAFFMARK, INC. AMENDED AND RESTATED 1996 STOCK OPTION PLAN SECTION 1. PURPOSE. The Plan (i) authorizes the Committee to provide to Employees and Consultants of the Corporation and its Subsidiaries, who are in a position to contribute materially to the long-term success of the Corporation, with options to acquire Common Stock, par value $.01 per share, of the Corporation, and (ii) provides for the automatic grant of options to Non-Employee Directors of the Corporation in accordance with the terms specified herein. The Corporation believes that this incentive program will cause those persons to increase their interest in the Corporation's welfare, and aid in attracting and retaining Employees, Consultants and Directors of outstanding ability. SECTION 2. DEFINITIONS. Unless the context clearly indicates otherwise, the following terms, when used in this Plan, shall have the meanings set forth in this Section: (a) "Board" shall mean the Board of Directors of the Corporation. (b) A "Change in Control" shall be deemed to have occurred if: (i) any person, other than the Corporation or an employee benefit plan of the Corporation, acquires directly or indirectly the Beneficial Ownership of any voting security of the Corporation and immediately after such acquisition such Person is, directly or indirectly, the Beneficial Owner of voting securities representing 50% or more of the total voting power of the then-outstanding voting securities of the Corporation; (ii) the individuals (A) who, as of the closing date of the Initial Public Offering, constitute the Board (the"Original Directors") or (B) who thereafter are elected to the Board and whose election, or nomination for election, to the Board was approved by a vote of at least two-thirds (2/3) of the Original Directors then still in office (such directors becoming "Additional Original Directors" immediately following their election) or (C) who are elected to the Board and whose election, or nomination for election, to the Board was approved by a vote of at least two-thirds (2/3) of the Original Directors and Additional Original Directors then still in office (such directors also becoming "Additional Original Directors" immediately following their election)(such individuals being the "Continuing Directors"), cease for any reason to constitute a majority of the members of the Board; (iii) the stockholders of the Corporation shall approve a merger, consolidation, recapitalization, or reorganization of the Corporation, a reverse stock split of outstanding voting securities, or consummation of any such transaction if stockholder approval is not sought or obtained, other than any such transaction which would result in at least 75% of the total voting power represented by the voting securities of the surviving entity outstanding immediately after such transaction being Beneficially Owned by at least 75% of the holders of outstanding voting securities of the Corporation immediately prior to the transaction, with the voting power of each such continuing holder relative to other such continuing holders not substantially altered in the transaction; or (iv) the stockholders of the Corporation shall approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of all or a substantial portion of the Corporation's assets (i.e. 50% or more of the total assets of the Corporation). (c) "Code" shall mean the Internal Revenue Code of 1986 as it may be amended from time to time. 1 2 (d) "Committee" shall mean the Board, or any committee of two or more Directors that may be designated by the Board to administer the Plan. The Committee may be comprised of "non-employee directors" within the meaning of Rule 16b-3 under the Exchange Act and "outside directors" under section 162(m) of the Code. (e) "Consultant" shall mean (i) any person who is engaged to perform services for the Corporation or its Subsidiaries, other than as an Employee or Director, or (ii) any person who has agreed to become a consultant within the meaning of clause (i). (f) "Control Person" shall mean any person who, as of the date of grant of an Option, owns (within the meaning of Section 422(b)(6) of the Code) stock possessing more than ten percent (10%) of the total combined voting power or value of all classes of stock of the Corporation or of any Parent or "subsidiary corporation" (within the meaning of Section 424(f) of the Code). (g) "Corporation" shall mean StaffMark, Inc., a Delaware corporation. (h) "Director" shall mean any member of the Board. (i) "Employee" shall mean (i) any full-time employee of the Corporation or its Subsidiaries (including Directors who are otherwise employed on a full-time basis by the Corporation or its Subsidiaries), or (ii) any person who has agreed to become an employee within the meaning of clause (i). (j) "Exchange Act" shall mean the Securities Exchange Act of 1934 as it may be amended from time to time. (k) "Fair Market Value" of the Stock on a given date shall be based upon: (i) if the Stock is listed on a national securities exchange or quoted in an interdealer quotation system, the last sales price or, if unavailable, the average of the closing bid and asked prices per share of the Stock on such date (or, if there was no trading or quotation in the Stock on such date, on the next preceding date on which there was trading or quotation) as provided by one of such organizations; or (ii) if the Stock is not listed on a national securities exchange or quoted in an interdealer quotation system, as determined by the Board in good faith in its sole discretion, provided, however, that the "fair market value" of Stock on the date on which shares of Stock are first issued and sold pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission shall be the Initial Public Offering price of the shares so issued and sold, as set forth in the first prospectus used in such offering. (l) "Grantee" shall mean a person granted an Option under the Plan. (m) "Initial Public Offering" shall mean an initial public offering of shares of Stock in a firm commitment underwriting registered with the Securities and Exchange Commission in compliance with the provisions of the 1933 Act. (n) "ISO" shall mean an Option granted pursuant to the Plan to purchase shares of Stock and intended to qualify as an incentive stock option under Section 422 of the Code, as now or hereafter constituted. (o) "1933 Act" shall mean the Securities Act of 1933, as amended. (p) "Non-Employee Director" shall mean a Director of the Corporation who is not an Employee, and who was not an Employee at any time during the prior one year period. (q) "NQSO" shall mean an Option granted pursuant to the Plan to purchase shares of the Stock that are not ISOs. (r) "Options" shall refer collectively to NQSOs and ISOs issued under and subject to the Plan. 2 3 (s) "Parent" shall mean any parent corporation as defined in Section 424(e) of the Code. (t) "Plan" shall mean this Amended and Restated 1996 Stock Option Plan as set forth herein and as amended from time to time. (u) "Stock" shall mean shares of the common stock of the Corporation. (v) "Stock Option Agreement" shall mean a written agreement between the Corporation and the Grantee, or a certificate accepted by the Grantee, evidencing the grant of an Option hereunder and containing such terms and conditions, not inconsistent with the Plan, as the Committee shall approve. (w) "Subsidiary" shall mean (i) any company (whether a corporation, partnership, joint venture or other entity) in which the Company owns, directly or indirectly, a majority of the shares of capital stock or other equity interest, or (ii) any entity which the Committee reasonably expects to become a subsidiary within the meaning of clause (i). SECTION 3. SHARES OF STOCK SUBJECT TO THE PLAN. Subject to adjustment as described in section 10, the total amount of Stock that may be subject to outstanding Options, determined immediately after the grant of any Option, shall not exceed the greater of 650,000 shares or 12% percent of the total number of shares of Stock outstanding. Notwithstanding the foregoing, subject to adjustment as described in section 10, the number of shares that may be delivered upon exercise of ISOs shall not exceed 650,000. For purposes of the foregoing limits, shares subject to Options shall not be deemed delivered if such Options are forfeited, expire or otherwise terminate without delivery of shares to the Grantee. Any shares of Stock delivered pursuant to an Option may consist, in whole or in part, of authorized and unissued shares or treasury shares. SECTION 4. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Committee. Subject to the express provisions of the Plan, the Committee shall have the authority to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan, to determine the terms and provisions of Stock Option Agreements thereunder and to make all other determinations necessary or advisable for the administration of the Plan. Any controversy or claim arising out of or related to this Plan or the Options granted thereunder shall be determined unilaterally by, and at the sole discretion of, the Committee. Any action of the Committee with respect to the Plan shall be final, conclusive, and binding on all persons, including the Corporation, Subsidiaries of the Corporation, Grantees, and any person claiming any rights under the Plan from or through any Grantee and stockholders. The express grant of any specific power to the Committee, and the taking of any action by the Committee, shall not be construed as limiting any power or authority of the Committee. The Committee may delegate to officers or managers of the Corporation or any Subsidiary the authority, subject to such terms as the Committee shall determine, to perform administrative functions to the extent permitted under Rule 16b-3, if applicable, Code section 162(m), and other applicable law. SECTION 5. TYPES OF OPTIONS. Options granted under the Plan may be of two types: ISOs or NQSOs. The Committee shall have the authority and discretion to grant to an eligible Employee either ISOs, NQSOs or both, but shall clearly designate the nature of each Option at the time of grant in the Stock Option Agreement. SECTION 6. GRANT OF OPTIONS TO EMPLOYEES AND CONSULTANTS. (a) Employees and Consultants of the Corporation and its Subsidiaries shall be eligible to receive Options under the Plan. Grantees who are not employees of the Corporation or a "subsidiary corporation" (within the meaning of Section 424(f) of the Code) on the date an Option is granted shall only receive NQSOs. (b) The exercise price per share of Stock subject to an Option granted to an Employee or Consultant shall be determined by the Committee and specified in the Stock Option Agreement, provided, however, that the exercise price of each share subject to an Option shall be not less than 100%, or, in the case of an ISO granted to a Control Person, 110% of the Fair Market Value of a share of the Stock on the date such Option is granted. 3 4 (c) The term of each Option granted to an Employee or Consultant shall be determined by the Committee and specified in a Stock Option Agreement, provided that no Option shall be exercisable more than ten years from the date such Option is granted, and provided further that no ISO granted to a Control Person shall be exercisable more than five years from the date of the Option grant. (d) The Committee shall determine and designate from time to time Employees or Consultants who are to be granted Options, and shall specify in the Stock Option Agreement the nature of each Option granted and the number of shares of Stock subject to each such Option, provided, however, that in any calendar year, no Employee or Consultant may be granted an Option to purchase more than 500,000 shares of Stock (determined without regard to when such Option is exercisable), subject to adjustment pursuant to Section 10. (e) Notwithstanding any other provisions hereof, the aggregate Fair Market Value (determined at the time the ISO is granted) of the Stock with respect to which ISOs are exercisable for the first time by any Employee during any calendar year under all plans of the Corporation and any Parent or "subsidiary corporation" (within the meaning of Section 424(f) of the Code) shall not exceed $100,000. To the extent the limitation set forth in the preceding sentence is exceeded, the Options with respect to such excess shall be treated as NQSOs. (f) The Committee shall determine whether any Option granted to an Employee or Consultant shall become exercisable in one or more installments and specify the installment dates in the Stock Option Agreement. The Committee may also specify in the Stock Option Agreement such other provisions, not inconsistent with the terms of this Plan, as it may deem desirable, including such provisions as it may deem necessary to qualify any ISO under the provisions of Section 422 of the Code. Unless otherwise determined by the Committee and specified in the Stock Option Agreement, all Options shall immediately become exercisable upon a Change in Control. (g) All Options granted hereunder prior to the Initial Public Offering shall be conditional upon, and for all purposes hereunder, deemed granted upon, the Initial Public Offering. (h) The Committee may, at any time, grant new or additional options to any eligible Employee or Consultant who has previously received Options under this Plan, or options under other plans, whether such prior Options or other options are still outstanding, have been exercised previously in whole or in part, or have been canceled. The exercise price of such new or additional Options may be established by the Committee, subject to Section 6(b) hereof, without regard to such previously granted Options or other options. SECTION 7. GRANTS OF OPTIONS TO NON-EMPLOYEE DIRECTORS. (a) Non-Employee Directors of the Corporation shall be eligible to receive Options under the Plan only pursuant to the provisions of this Section 7. Each individual who agrees to become a Non-Employee Director prior to the consummation of the Corporation's Initial Public Offering shall receive, without the exercise of the discretion of any person, an NQSO under the Plan relating to the purchase of 10,000 shares of Stock at an exercise price per share equal to the Initial Public Offering Price per share. Such Option grant shall be conditional upon, and for all purposes hereunder, deemed granted upon, the Initial Public Offering. Thereafter, on the day after the first annual meeting of stockholders next following the date of an Initial Public Offering, and the day after each subsequent annual meeting, each person who is a continuing Non-Employee Director on any such date shall receive, without the exercise of the discretion of any person, an NQSO under the Plan relating to the purchase of 2,000 shares of Stock, and each person who is a new, first-time Non-Employee Director on any such date shall receive, without the exercise of the discretion of any person, an NQSO under the Plan relating to the purchase of 10,000 shares of Stock. In the event that there are not sufficient shares available under this Plan to allow for the grant to each Non-Employee Director of an NQSO for the number of shares provided herein, each Non-Employee Director shall receive an NQSO for his pro rata share of the total number of shares of Stock available under the Plan. 4 5 (b) Except as set forth in Section 7(a), the exercise price of each share of Stock subject to an Option granted to a Non-Employee Director shall equal the Fair Market Value of a share of Stock on the date such Option is granted. (c) Each Option granted to a Non-Employee Director shall become exercisable in equal annual installments on the date of grant and on each of the first two anniversaries of the date of grant, and shall have a term of five years from the date of grant. Notwithstanding the exercise period of any Option granted to a Non-Employee Director, all such Options shall immediately become exercisable upon a Change in Control. SECTION 8. EXERCISE OF OPTIONS. (a) A Grantee or other permitted holder shall exercise an Option by delivery of written notice to the Corporation setting forth the number of shares with respect to which the Option is to be exercised, together with cash, certified check, bank draft, wire transfer, or postal or express money order payable to the order of the Corporation for an amount equal to the Option price of such shares and any income tax which may be required to be withheld as determined by the Committee pursuant to Section 12. The Committee may, in its sole discretion, permit a Grantee to pay all or a portion of the exercise price by delivery of Stock or other property (including notes or other contractual obligations of Grantees to make payment on a deferred basis, such as through "cashless exercise" arrangements, to the extent permitted by applicable law), and the methods by which Stock will be delivered or deemed to be delivered to Grantees. (b) Except as provided pursuant to section 9(a), no Option granted to an Employee or Consultant shall be exercised unless at the time of such exercise the Grantee is then: (i) an employee of the Company or a Subsidiary (determined with reference to Section 2(w)(i) only); or (ii) a Consultant (determined with reference to Section 2(e)(i) only) of the Corporation or a Subsidiary (determined with reference to Section 2(w)(i) only). (c) Except as provided in Section 9(a), no Option granted to a Non-Employee Director shall be exercised unless at the time of such exercise the Grantee is then a Non-Employee Director. SECTION 9. EXERCISE OF OPTIONS UPON TERMINATION. (a) Unless otherwise determined by the Committee, upon termination of a Grantee's employment with the Corporation and its Subsidiaries, such Grantee may exercise any Options during the three month period following such termination of employment, but only to the extent such Option was exercisable immediately prior to such termination of employment. Notwithstanding the foregoing, if the Committee determines that such termination is for cause, all Options held by the Grantee shall immediately terminate. In addition, all Options granted on the basis of clause (ii) of Section 2(e), Section 2(i) or Section 2(w) shall immediately terminate if the Committee determines, in its sole discretion, that the Consultant, Employee, or Subsidiary, as the case may be, will not become a Consultant, Employee or Subsidiary within the meaning of clause (i) of such Sections. (b) Unless otherwise determined by the Committee and specified in the Stock Option Agreement, in no event shall any Option be exercisable for more than the maximum number of shares that the Grantee was entitled to purchase at the date of termination of the relationship with the Corporation and its Subsidiaries. (c) The sale of any Subsidiary shall be treated as a termination of employment with respect to any Grantee employed by such Subsidiary. (d) Subject to the foregoing, in the event of death, Options may be exercised by a Grantee's legal representative. Options transferred pursuant to Section 14 may also be exercised by a permitted holder. 5 6 SECTION 10. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. In the event any dividend or other distribution (whether in the form of cash, Stock, or other property), recapitalization, forward or reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase, or share exchange, or other similar corporate transaction or event affects the Stock such that an adjustment is appropriate in order to prevent dilution or enlargement of the rights of Grantees under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of (i) the number and kind of shares of Stock deemed to be available thereafter for grants of Options under Section 3, (ii) the number and kind of shares of Stock that may be delivered or deliverable in respect of outstanding Options, (iii) the number of shares with respect to which Options may be granted to a given Grantee in the specified period as set forth in Section 6(d), and (iv) the exercise price or, if deemed appropriate, the Committee may make provision for a cash payment with respect to any conditions of, and the criteria included in, Options (including, without limitation, cash payments in exchange for an Option or substitution of Options using stock of a successor or other entity) in recognition of unusual or nonrecurring events (including, without limitation, events described in the preceding sentence) affecting the Corporation or any Subsidiary or the financial statements of the Corporation or any Subsidiary, or in response to changes in applicable laws, regulations, or accounting principles. SECTION 11. RESTRICTIONS ON ISSUING SHARES. The Corporation shall not be obligated to deliver Stock upon the exercise or settlement of any Options or take other actions under the Plan until the Corporation shall have determined that applicable federal and state laws, rules, and regulations have been complied with and such approvals of any regulatory or governmental agency have been obtained and contractual obligations to which the Option may be subject have been satisfied. The Corporation, in its discretion, may postpone the issuance or delivery of Stock under any Option until completion of such stock exchange listing or registration or qualification of such Stock or other required action under any federal or state law, rule, or regulation as the Corporation may consider appropriate, and may require any Grantee to make such representations and furnish such information as it may consider appropriate in connection with the issuance or delivery of Stock under the Plan. SECTION 12. TAX WITHHOLDING. To the extent required by applicable federal, state, local or foreign law, a Grantee shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise by reason of an Option exercise or any sale of shares. The Company shall not be required to issue shares until such obligations are satisfied. The Committee may permit these obligations to be satisfied by having the Company withhold a portion of the shares of the stock that otherwise would be issued to him or her upon the exercise of the Option, or to the extent permitted, by tendering shares previously acquired. The Committee may also, upon the request of a Grantee desiring to exercise an Option, direct the Company to lend the Grantee an amount necessary to pay any federal and state income tax withholding requirements in connection with such exercise, which loan may be forgiven over a three-year period subject to continued service with the Company. SECTION 13. LOANS TO GRANTEES. The Committee may, upon the request of a Grantee, direct the Company to lend the Grantee an amount necessary to satisfy the exercise price of any Option. Such loan may be forgiven over a three-year period subject to continued service with the Company. SECTION 14. TRANSFERABILITY. (a) Except as provided below, no Option shall be subject to anticipation, sale, assignment, pledge, encumbrance, charge or transfer except by will or the laws of descent and distribution, and an Option shall be exercisable during the Grantee's lifetime only by the Grantee. (b) Notwithstanding the foregoing, the Committee may provide, in a Stock Option Agreement, that the Grantee may transfer NQSOs to family members or other persons or entities according to such terms as the Committee may determine; provided that the Grantee receives no consideration for the transfer of the NQSO and the transferred NQSO shall continue to be subject to the same terms and conditions as were applicable to the NQSO immediately before the transfer. SECTION 15. GENERAL PROVISIONS. 6 7 (a) Each Option shall be evidenced by a Stock Option Agreement. The terms and provisions of such Stock Option Agreements may vary among Grantees and among different Options granted to the same Grantee. (b) The grant of an Option in any year shall not give the Grantee any right to similar grants in future years, any right to continue such Grantee's employment relationship with the Corporation or its Subsidiaries, or, until such Option is exercised and share certificates are issued, any rights as a stockholder of the Corporation. All Grantees shall remain subject to discharge to the same extent as if the Plan were not in effect. (c) No Grantee, and no beneficiary or other persons claiming under or through the Grantee shall have any right, title or interest by reason of any Option to any particular assets of the Corporation or its Subsidiaries, or any shares of Stock allocated or reserved for the purposes of the Plan or subject to any Option except as set forth herein. The Corporation shall not be required to establish any fund or make any other segregation of assets to assure the payment of any Option. (d) The issuance of shares of Stock to Grantees, their legal representatives or other permitted holders shall be subject to any applicable taxes and other laws or regulations of the United States or of any state having jurisdiction thereof. SECTION 16. AMENDMENT OR TERMINATION. The Board may, at any time, alter, amend, suspend, discontinue or terminate this Plan; provided, however, that no such action shall adversely affect the rights of Grantees to Options previously granted hereunder and, provided further, however, that any shareholder approval necessary or desirable in order to comply with Section 162(m) or Section 422 of the Code (or other applicable law or regulation) shall be obtained in the manner required therein. The Committee may waive any conditions or rights under, or amend, alter, suspend, discontinue, or terminate, any Option theretofore granted and any Stock Option Agreement relating thereto; provided, however, that, without the consent of an affected Grantee, no such action may materially impair the rights of such Grantee under such Option. SECTION 17. EFFECTIVE DATE OF PLAN. This Plan is effective upon its adoption by the Board and shall continue in effect until terminated by the Board. No ISO may be granted more than ten years after the adoption of the Plan by the Board or approval of the Plan by the stockholders, whichever is earlier. - - - - - - - - - - - - - - This Plan was amended and restated on March 12, 1998. 7 EX-10.25 5 AMENDED EMPLOYEE STOCK PURCHASE PLAN 1 Exhibit 10.25 STAFFMARK, INC. EMPLOYEE STOCK PURCHASE PLAN TABLE OF CONTENTS
Page ---- ARTICLE I...................................................................1 Introduction.......................................................1 Sec. 1.01 Statement of Purpose....................................1 Sec. 1.02 Internal Revenue Code Considerations....................1 Sec. 1.03 ERISA Considerations....................................1 ARTICLE II..................................................................1 Definitions........................................................1 Sec. 2.01 "Board of Directors.....................................1 Sec. 2.02 "Code...................................................1 Sec. 2.03 "Committee..............................................1 Sec. 2.04 "Company................................................1 Sec. 2.05 "Continuous Service.....................................1 Sec. 2.06 "Effective Date"........................................1 Sec. 2.07 "Election Date..........................................1 Sec. 2.08 "Eligible Employee".....................................2 Sec. 2.09 "Employee"..............................................2 Sec. 2.10 "Employer"..............................................2 Sec. 2.11 "Exchange Act"..........................................2 Sec. 2.12 "Excused Absence".......................................2 Sec. 2.13 "Market Value"..........................................2 Sec. 2.14 "Participant"...........................................2 Sec. 2.15 "Plan"..................................................2 Sec. 2.16 "Purchase Agreement"....................................2 Sec. 2.17 "Purchase Date".........................................3 Sec. 2.18 "Purchase Period........................................3 Sec. 2.19 "Stock".................................................3 Sec. 2.20 "Subsidiary.............................................3 ARTICLE III.................................................................3 Admission to Participation.........................................3 Sec. 3.01 Initial Participation...................................3 Sec. 3.02 Discontinuance of Participation.........................3 Sec. 3.03 Readmission to Participation............................3 ARTICLE IV..................................................................4 Stock Purchase and Resale..........................................4 Sec. 4.01 Reservation of Shares...................................4 Sec. 4.02 Limitation on Shares Available..........................4 Sec. 4.03 Purchase Price of Shares................................4 Sec. 4.04 Exercise of Purchase Privilege..........................4 Sec. 4.05 Payroll Deductions......................................5 Sec. 4.06 Payment for Stock.......................................5 Sec. 4.07 Share Ownership; Issuance of Certificates...............5 Sec. 4.08 Withdrawal of Shares or Resale of Stock.................6 ARTICLE V...................................................................7
2 Special Adjustments................................................7 Sec. 5.01 Shares Unavailable......................................7 Sec. 5.02 Anti-Dilution Provisions................................7 Sec. 5.03 Effect of Certain Transactions..........................7 ARTICLE VI..................................................................7 Miscellaneous......................................................7 Sec. 6.01 Non-Alienation..........................................7 Sec. 6.02 Administrative Costs....................................8 Sec. 6.03 The Committee...........................................8 Sec. 6.04 Amendment of the Plan...................................8 Sec. 6.05 Expiration and Termination of the Plan..................8 Sec. 6.06 Repurchase of Stock.....................................8 Sec. 6.07 Notice..................................................8 Sec. 6.08 Government Regulation...................................8 Sec. 6.09 Headings, Captions, Gender..............................9 Sec. 6.10 Severability of Provisions, Prevailing Law..............9
3 ARTICLE I Introduction Sec. 1.01 Statement of Purpose. The purpose of the StaffMark, Inc. Employee Stock Purchase Plan is to provide eligible employees of the Company and its subsidiaries, who wish to become shareholders, an opportunity to purchase common stock of the Company. The board of directors of the Company believes that employee participation in stock ownership will be to the mutual benefit of both the employees and the Company. Sec. 1.02 Internal Revenue Code Considerations. The Plan is intended to constitute an "employee stock purchase plan" within the meaning of section 423 of the Internal Revenue Code of 1986, as amended. Sec. 1.01 ERISA Considerations. The Plan is not intended and shall not be construed as constituting an "employee benefit plan," within the meaning of section 3(3) of the Employee Retirement Income Security Act of 1974, as amended. ARTICLE II Definitions Sec. 2.01 "Board of Directors" means the board of directors of the Company or a committee of the board of directors authorized to act on its behalf. Sec. 2.01 "Code" means the Internal Revenue Code of 1986, as amended, and any successor statute of similar nature. References to specific sections of the Code shall be taken to be references to corresponding sections of any successor statute. Sec. 2.03 "Committee" means the committee appointed by the Board of Directors to administer the Plan, as provided in Section 6.03 hereof. Sec. 2.04 "Company" means StaffMark, Inc., a Delaware corporation. Sec. 2.05 "Continuous Service" means the period of time immediately preceding the Election Date during which the Employee has been employed by an Employer and during which there has been no interruption of the Employee's employment with the Employer. For this purpose, periods of Excused Absence shall not be considered to be interruptions of Continuous Service. Sec. 2.06 "Effective Date" shall mean June 1, 1997 provided that within twelve months of that date, the Plan is approved at a meeting of the shareholders of the Company. Sec. 2.07 "Election Date" means each January 1 and July 1 or such other dates as the Committee shall specify. Sec. 2.08 "Eligible Employee" means each Employee who (i) is classified by the Employer as an active regular full or part-time employee; (ii) is not deemed for purposes of section 423(b)(3) of the Code to own stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or any Subsidiary; and (iii) has completed at least one year of Continuous Service with the Employer. Sec. 2.09 "Employee" means each person employed by an Employer if such person's customary employment is for more than twenty (20) hours per week and for more than five (5) months per year. The term shall not include any person employed by an Employer on a temporary basis. Sec. 2.10 "Employer" means the Company and each Subsidiary. 1 4 Sec. 2.11 "Exchange Act" means the Securities Exchange Act of 1934, as amended, and as the same may hereafter be amended. Sec. 2.12 "Excused Absence" means absence pursuant to a leave of absence granted by the Employer, absence due to disability or illness, absence by reason of a layoff or inactive status due to completion of an assignment, or absence by reason of uniformed service within the meaning of the Uniformed Services Employment and Reemployment Rights Act ("USERRA"). In no event may an Excused Absence exceed six (6) months in length (or, if longer and if applicable, the period of the individual's uniformed services within the meaning of the USERRA and such period thereafter as such individual's right to reemployment by Employer is protected by law), and any absence shall cease to be an Excused Absence upon the earlier of (a) the last day of the calendar month in which the duration of the absence reaches six (6) months (or such longer period as may be required under the USERRA or other applicable law) or (b) the last day of the calendar month in which the leave expires by its terms, the layoff or inactive status ends by recall or permanent separation from service, or recovery from illness or disability occurs. Sec. 2.13 "Market Value" means the last price for the Stock as reported on the Nasdaq National Market for the date of reference. If there was no such price reported for the date of reference, "Market Value" means the "Market Value" as of the date next preceding the date of reference for which such price was reported. Sec. 2.14 "Participant" means each Eligible Employee who elects to participate in the Plan. Sec. 2.15 "Plan" means the StaffMark Employee Stock Purchase Plan, as the same is set forth herein and as the same may hereafter be amended. Sec. 2.16 "Purchase Agreement" means the instrument prescribed by the Committee pursuant to which an Eligible Employee may enroll as a Participant and subscribe for the purchase of shares of Stock on the terms and conditions offered by the Company. The Purchase Agreement also is intended to evidence the Company's offer of an option to the Eligible Employee to purchase Stock on the terms and conditions set forth therein and herein. Sec. 2.17 "Purchase Date" means September 30, 1997 and the last day of each Purchase Period ending thereafter. Sec. 2.18 "Purchase Period" means the period July 1, 1997 (or such later date as designated by the Committee) through September 30, 1997 and, thereafter, each calendar quarter or other period specified by the Board of Directors during which the Participant's stock purchase is funded through payroll deduction accumulations. Sec. 2.19 "Stock" means the common stock of the Company. Sec. 2.20 "Subsidiary" means any present or future corporation (i) which constitutes a "subsidiary corporation" of the Company as that term is defined in section 424 of the Code, and (ii) is designated as a participating entity in the Plan by the Committee. Unless the Committee specifically designates otherwise, a Canadian or other foreign subsidiary shall not be considered a Subsidiary for purposes of the Plan, and employees of such a subsidiary shall not be Eligible Employees. 2 5 ARTICLE III Admission to Participation Sec. 3.01 Initial Participation. Any Eligible Employee may elect to be participate in the Plan and may become a Participant effective as of any Election Date, by executing and filing with the Committee a Purchase Agreement at such time in advance of such Election Date as the Committee shall prescribe. Such Purchase Agreement shall remain in effect until modified or canceled in accordance with the further terms of this Plan, as hereinafter set forth. Sec. 3.02 Discontinuance of Participation. A Participant may voluntarily cease his or her participation in the Plan and stop payroll deductions at any time by filing a notice of cessation of participation on such form and at such time in advance of the effective date as the Committee shall prescribe. Notwithstanding anything in the Plan to the contrary, if a Participant ceases to be an Eligible Employee, his or her participation automatically shall cease and no further purchase of Stock shall be made for such Participant hereunder. Sec. 3.03 Readmission to Participation. Any Eligible Employee who has previously been a Participant, who has discontinued participation (whether by cessation of eligibility or otherwise), and who wishes to be reinstated as a Participant may again become a Participant by executing and filing with the Committee a new Purchase Agreement. Reinstatement to Participant status shall be effective as of any Election Date, provided the Participant files such new Purchase Agreement with the Committee at such time in advance of such Election Date as the Committee shall prescribe. ARTICLE IV Stock Purchase and Resale Sec. 4.01 Reservation of Shares. There shall be 300,000 shares of Stock reserved for the Plan, subject to adjustment in accordance with the antidilution provisions hereinafter set forth. Except as provided in Section 5.02 hereof, the aggregate number of shares of Stock that may be purchased under the Plan shall not exceed the number of shares of Stock reserved for the Plan. Sec. 4.02 Limitation on Shares Available. The maximum number of shares of Stock that may be purchased for each Participant on a Purchase Date is the lesser of (a) the number of whole and fractional shares of Stock that can be purchased by applying the full balance of the Participant's withheld funds to such purchase of shares of Stock at the Purchase Price (as hereinafter determined), or (b) the Participant's proportionate part of the maximum number of shares of Stock available within the limitation established by the maximum aggregate number of such shares reserved for the Plan, as stated in Section 4.01 hereof. Notwithstanding the foregoing, if any person entitled to purchase shares pursuant to any offering hereunder would be deemed for the purposes of section 423(b)(3) of the Code to own stock (including any number of shares of Stock that such person would be entitled to purchase hereunder) possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of Company, the maximum number of shares of Stock that such person shall be entitled to purchase pursuant to the Plan shall be reduced to that number which, when added to the number of shares of stock that such person is so deemed to own (excluding any number of shares of Stock that such person would be entitled to purchase hereunder), is one less than such five percent (5%). Any amounts withheld from the Participant's compensation that cannot be applied by reason of the foregoing limitation shall be returned to the Participant as soon as practicable. Sec. 4.03 Purchase Price of Shares. The Purchase Price per share of the Stock sold to Participants pursuant to any offering hereunder shall be the lower of eighty-five percent (85%) of the Market Value of such share on the first day of the Purchase Period or the Purchase Date. Notwithstanding the foregoing, the Board of Directors may determine that the Purchase Price shall be the Market Value, or a percentage of the Market Value on either of such dates or the lower of such dates, so long as such percentage shall not be lower than eighty-five percent (85%) of such Market Value. 3 6 Sec. 4.04 Exercise of Purchase Privilege 1. Each Participant shall be granted an option to purchase shares of Stock as of the first day of each Purchase Period at the Purchase Price specified in Section 4.03. The option shall continue in effect through the Purchase Date for the Purchase Period. Subject to the provisions of Section 4.02 above and of paragraph (c) of this Section 4.04, on each Purchase Date, the Participant shall be automatically deemed to have exercised his or her option to purchase shares of Stock on the Purchase Date, unless he or she notifies the Committee, in such manner and at such time in advance of the Purchase Date as the Committee shall prescribe, of his or her desire not to make such purchase. 2. There shall be purchased for the Participant on such Purchase Date at the Purchase Price for such Purchase Period the largest number of whole and fractional shares of Stock as can be purchased with the amounts withheld from the Participant's compensation during the Purchase Period. Each such purchase shall be deemed to have occurred on the Purchase Date occurring at the close of the Purchase Period for which the purchase was made. 3. A Participant may not purchase shares of Stock having an aggregate Market Value of more than twenty-five thousand dollars ($25,000), determined at the beginning of each Purchase Period, for any calendar year in which one or more such offerings are outstanding at any time, and a Participant may not purchase a share of Stock under any offering after the expiration of the Purchase Period for such offering. Sec. 4.05 Payroll Deductions. Each Participant shall authorize payroll deductions from his or her compensation for the purpose of funding the purchase of Stock pursuant to his or her Purchase Agreement. In the Purchase Agreement, each Participant shall authorize an after-tax payroll deduction from each payment of his compensation during a Purchase Period, of an amount not less than $10 per paycheck ($20 for any Participant on a monthly payroll period) and not more than 10% of such Participant's compensation. A Participant may change the deduction to any permissible level effective as of any Election Date. Such change shall be made by the Participant's filing with the Committee a notice in such form and at such time in advance of the date on which such change is to be effective as the Committee shall prescribe. Sec. 4.06 Payment for Stock. The Purchase Price for all shares of Stock purchased by a Participant under the Plan shall be paid out of the Participant's authorized payroll deductions. All funds received or held by the Company under the Plan are general assets of the Company, free of any trust or other restriction, and may be used for any corporate purpose. Sec. 4.07 Share Ownership; Issuance of Certificates (a) The shares of Stock purchased by a Participant on a Purchase Date shall, for all purposes, be deemed to have been issued and/or sold at the close of business on such Purchase Date. Prior to that time, none of the rights or privileges of a shareholder of the Company shall inure to the Participant with respect to such shares of Stock. All the shares of Stock purchased under the Plan shall be delivered by the Company in a manner as determined by the Committee. (b) The Committee, in its sole discretion, may determine that the shares of Stock shall be delivered by the Company by (i) issuing and delivering to the Participant a certificate for the number of shares of Stock purchased by such Participant on a Purchase Date or during a calendar year or other period determined by the Committee, (ii) issuing and delivering a certificate or certificates for the number of shares of Stock purchased by all Participants on a Purchase Date or during a calendar year or other period determined by the Committee to a firm which is a member of the National Association of Securities Dealers, as selected by the Committee from time to time, which shares shall be maintained by such firm in separate brokerage accounts of each Participant, or (iii) issuing and delivering a certificate or certificates for the number of shares of Stock purchased by all Participants on a Purchase Date or during the calendar year or other period determined by the Committee to a bank or trust company or affiliate thereof, as selected by the Committee from time to time, which shares may be 4 7 held by such bank or trust company or affiliate in "street name", but with separate accounts maintained by such entity for each Participant reflecting such Participant's whole share interests in the Stock. Each certificate or account, as the case may be, may be in the name of the Participant or, if he/she designates on the Participant's Purchase Agreement, in the Participant's name jointly with the Participant's spouse, with right of survivorship. A Participant who is a resident of a jurisdiction that does not recognize such joint tenancy may have a certificate or account in the Participant's name as tenant in common with the Participant's spouse, without right of survivorship. Such designation may be changed by filing notice thereof. (c) In addition to any restrictions or limitations on the resale of Stock purchased under the Plan set forth in Section 4.08 hereof or otherwise hereunder, the Committee, in its sole discretion, may impose such restrictions or limitations, as it shall determine, on the resale of Stock, the issuance of individual stock certificates or withdrawal from any shareholder accounts established for a Participant pursuant to the terms hereof. (d) Any dividends payable with respect to whole or fractional shares of Stock credited to a shareholder account of a Participant established pursuant to Section 4.07(b) hereof will be reinvested in shares of Stock and credited to such Participant's account. Sec. 4.08 Withdrawal of Shares or Resale of Stock (a) A Participant may not sell any shares of Stock purchased hereunder or withdraw his or her shares of Stock from any shareholder account established pursuant to Section 4.07(b) hereof prior to the first anniversary of the Purchase Date on which the shares were purchased. After the first anniversary of the Purchase Date for shares of Stock, the Participant may request a withdrawal of those shares or order the sale of those shares at any time by making a request in such form and at such time as the Committee shall prescribe. (b) Notwithstanding the foregoing, in the event a Participant terminates his or her employment with all Employers or otherwise ceases to be an Eligible Employee, he or she shall receive a distribution of his or her shares of Stock held in any shareholder account established pursuant to Section 4.07(b), unless he or she elects to have such shares of Stock sold in accordance with such procedures as the Committee shall prescribe. (c) If a Participant is to receive a withdrawal or distribution of shares of Stock, the withdrawal or distribution shall be paid in whole shares of Stock, with fractional shares paid in cash. ARTICLE V Special Adjustments Sec. 5.01 Shares Unavailable. If, on any Purchase Date, the aggregate funds available for the purchase of Stock would purchase a number of shares in excess of the number of shares of Stock then available for purchase under the Plan, the following events shall occur: 1. The number of shares of Stock that would otherwise be purchased by each Participant shall be proportionately reduced on the Purchase Date in order to eliminate such excess; and 2. The Plan shall automatically terminate immediately after the Purchase Date as of which the supply of available shares is exhausted. Sec. 5.02 Anti-Dilution Provisions. The aggregate number of shares of Stock reserved for purchase under the Plan, as hereinabove provided, and the calculation of the Purchase Price per share may be appropriately adjusted to reflect any increase or decrease in the number of issued shares of Stock resulting from a subdivision or consolidation of shares or other capital adjustment, or the payment of a stock dividend, or other increase or decrease in such shares, if effected without receipt of consideration by the Company. Any such 5 8 adjustment shall be made by the Committee acting with the consent of, and subject to the approval of, the Board of Directors. Sec. 5.03 Effect of Certain Transactions. Subject to any required action by the shareholders, if the Company shall be the surviving or resulting corporation in any merger or consolidation, any offering hereunder shall pertain to and apply to the shares of stock of the Company. However, in the event of a dissolution or liquidation of the Company, or of a merger or consolidation in which the Company is not the surviving or resulting corporation, the Plan and any offering hereunder shall terminate upon the effective date of such dissolution, liquidation, merger or consolidation, and the balance of any amounts withheld from the Participant's compensation, which had not by such time been applied to the purchase of stock shall be returned to the Participant. ARTICLE VI Miscellaneous. Sec. 6.01 Non-Alienation. The right to purchase shares of Stock under the Plan is personal to the Participant, is exercisable only by the Participant during the Participant's lifetime except as hereinafter set forth, and may not be assigned or otherwise transferred by the Participant. Notwithstanding the foregoing, there shall be delivered to the executor, administrator or other personal representative of a deceased Participant such shares of Stock and such residual amounts as may remain to the Participant's credit from amounts withheld from the Participant's compensation as of the Purchase Date occurring at the close of the period in which the Participant's death occurs, including shares of Stock purchased as of that date or prior thereto with moneys withheld from the Participant's compensation. Sec. 6.02 Administrative Costs. The Company shall pay all administrative expenses associated with the operation of the Plan. Sec. 6.03 The Committee. The Board of Directors shall appoint a Committee, which shall have the authority and power to administer the Plan and to make, adopt, construe, and enforce rules and regulations not inconsistent with the provisions of the Plan. The Committee shall adopt and prescribe the contents of all forms required in connection with the administration of the Plan, including, but not limited to, the Purchase Agreement, payroll withholding authorizations, withdrawal documents, and all other notices required hereunder. The Committee shall have the fullest discretion permissible under law in the discharge of its duties. The Committee's interpretations and decisions in respect of the Plan, the rules and regulations pursuant to which it is operated, and the rights of Participants hereunder shall be final and conclusive. Sec. 6.04 Amendment of the Plan. The Board of Directors (or its delegate) may amend or terminate the Plan at any time; provided, however, that the Board of Directors (or its delegate) shall not amend the Plan without stockholder approval if: (i) the amendment increases the number of shares available for purchase under the Plan, or (ii) such approval is required by section 423 of the Code. Sec. 6.05 Expiration and Termination of the Plan. The Plan shall continue in effect for ten (10) years from the Effective Date, unless terminated prior thereto pursuant to the provisions of the Plan or pursuant to action by the Board of Directors, which shall have the right to terminate the Plan at any time without prior notice to any Participant and without liability to any Participant. Upon the expiration or termination of the Plan, the balance, if any, then standing to the credit of each Participant from amounts withheld from the Participant's compensation which had not, by such time, been applied to the purchase of Stock shall be refunded to the Participant. Sec. 6.06 Repurchase of Stock. The Company shall not be required to purchase or repurchase from any Participant any of the shares of Stock that the Participant acquired under the Plan. Sec. 6.07 Notice. A Purchase Agreement and any notice that a Participant files pursuant to the Plan shall be on the form prescribed by the Committee and shall be effective only when received by the Committee. Delivery of such forms may he made by hand or by certified mail, sent postage prepaid, to StaffMark, Inc. 302 East 6 9 Millsap Road, Fayetteville, AR 72703 Attention: Employee Stock Purchase Plan Administrator. Delivery by any other mechanism shall be deemed effective at the option and discretion of the Committee. Sec. 6.08 Government Regulation. The Company's obligation to sell and to deliver the Stock under the Plan is at all times subject to all approvals of any governmental authority required in connection with the authorization, issuance, sale or delivery of such Stock. Sec. 6.09 Headings, Captions, Gender. The headings and captions herein are for convenience of reference only and shall not be considered as part of the text. The masculine shall include the feminine, and vice versa. Sec. 6.10 Severability of Provisions, Prevailing Law. The provisions of the Plan shall be deemed severable. In the event any such provision is determined to be unlawful or unenforceable by a court of competent jurisdiction or by reason of a change in an applicable statute, the Plan shall continue to exist as though such provision had never been included therein (or, in the case of a change in an applicable statute, had been deleted as of the date of such change). The Plan shall be governed by the laws of the State of Delaware to the extent such laws are not in conflict with, or superseded by, federal law. 7 EX-10.26 6 NON-EMPLOYEE DIRECTOR ELECTION PLAN 1 Exhibit 10.26 STAFFMARK, INC. STOCK ELECTION PLAN FOR NON-EMPLOYEE DIRECTORS 1. PURPOSE StaffMark, Inc. (the "Company") has established the StaffMark, Inc. Stock Election Plan for Non-Employee Directors (the "Plan") to allow Eligible Directors (as defined below in Section 2.4) of the Company to receive all or a portion of their compensation in the form of shares of the Company's Common Stock ("Shares"). The Plan is intended to increase the proprietary interest of Eligible Directors by providing further opportunity for ownership of the Shares and to more closely align the interests of such persons with the interests of the Company's stockholders. 2. ADMINISTRATION 2.1 The Plan shall be administered by the Board of Directors of the Company (the "Board"). 2.2 The Board may make such rules and establish such procedures for the administration of the Plan as it deems appropriate to carry out the purpose of the Plan. The interpretation and application of the Plan or of any rule or procedure, and any other matter relating to or necessary to the administration of the Plan, shall be determined in the sole discretion of the Board, and any such determination shall be final and binding on all persons. All determinations of the Board shall be made by a majority of its members at a meeting duly called pursuant to the provisions of the By-laws of the Company. The Board may delegate to one or more of its members or to one or more agents such administrative duties as it may deem advisable. 2.3 All costs and expenses involved in administering the Plan shall be borne by the Company. 2.4 For purposes of the Plan, an "Eligible Director" shall be a member of the Board who is not an employee of the Company or any subsidiary or affiliate of the Company. If any Eligible Director at any time becomes such an employee, he or she shall thereupon cease to be an Eligible Director. 3. COMMON SHARES Shares which may be issued under the Plan may be either authorized and unissued shares of Company Common Stock or issued shares of Company Common Stock which have been reacquired by the Company, provided that the total number of Shares which may be issued under the Plan shall not exceed 25,000 Shares. 4. ELECTION FOR AND DELIVERY OF SHARES 4.1 Election. Each Eligible Director on or after the effective date of this Plan may elect to receive whole Shares equal to up to 100% of the amount of cash fees otherwise payable by the Company to an Eligible Director for services as a director (including any board meeting attendance fees, committee meeting attendance fees or any other fee payable for serving as a member of the Board, as approved by the Board) in lieu of the payment of such fees in cash. Such election may be made in incremental amounts of 5% of the total fee, and any continuing election shall remain in effect while such director remains an Eligible Director or until otherwise modified or revoked. Any modification or revocation of an existing election and any new election shall be effective as of the beginning of the next calendar quarter. Shares issuable pursuant to the foregoing election shall be distributed to each such Eligible Director at the same time as cash compensation would have otherwise been paid. 1 2 4.2 Valuation; Issuance; No Fractional Shares. Each Share shall be valued at the closing price of the Company's Common Stock on the Nasdaq National Market (or exchange, as applicable) on (i) the applicable meeting date, or (ii) if fees relate to services to be provided over time, rather than attendance or service on a date certain, then on the applicable payment dates as approved by the Board for such services. If there is no trading in the Company's Common Stock on such date, each Share shall be valued on the next preceding date on which there was trading. The number of Shares to be issued to an Eligible Director pursuant to an election made under the Plan shall be determined by dividing the amount of the cash election (as specified on an Eligible Director election form) by the applicable amount determined in accordance with the preceding sentence. No fractional shares shall be issued and amounts remaining unapplied thereof shall be carried forward in the case of a continuing election, or remitted to the Eligible Director in other circumstances. 4.3 Shares Unavailable. If, on any date, the aggregate number of Shares to be distributed pursuant to Eligible Director elections exceed the number of Shares then available for distribution under the Plan, the following events shall occur: (a) The number of Shares that would otherwise be distributed to each Eligible Director shall be proportionately reduced in order to eliminate such excess and any other compensation payable to the Eligible Director shall be paid in cash; and (b) The Plan shall automatically terminate immediately after such date as of which the supply of available Shares is exhausted. 4.4 Withholding Taxes. The Company shall have the right to make such provisions as it deems necessary or appropriate to satisfy any obligations it may have to withhold federal, state, or local income or other taxes incurred by reason of payments pursuant to the Plan. In lieu thereof, the Company shall have the right to withhold the amount of such taxes from any other sums due or to become due from the Company to an Eligible Director upon such terms and conditions as the Company may prescribe. 5. TERM OF PLAN The Plan is effective as of May 8, 1998 and shall remain in effect until December 31, 2008, unless sooner terminated by the Board. 6. AMENDMENT; TERMINATION The Board may at any time and from time to time alter, amend, suspend, or terminate the Plan in whole or in part; provided, however, no amendment which requires stockholder approval under applicable Delaware law or under the rules of Nasdaq or any securities exchange on which the shares of Company Common Stock may be listed shall be effective unless the same shall be approved by the requisite vote of the stockholders of the Company. 7. MISCELLANEOUS 7.1 Nothing in this Plan shall be construed as conferring any right upon any director to continuance as a member of the Board. 7.2 This Plan and all rights hereunder shall be construed in accordance with and governed by the laws of the State of Delaware. 7.3 This Plan shall not be construed to require the Company to fund any amount payable under the Plan, to create a trust of any kind or to set aside or earmark any monies or other assets specifically for payments under the Plan. 2 3 7.4 Notwithstanding any other provision of this Plan, the Company shall not be required to award or deliver any certificate for Shares under this Plan prior to fulfillment of all of the following conditions: (a) Any required listing or approval or notice of issuance of such Shares on Nasdaq or any securities exchange on which the Company's Common Shares may then be traded; (b) Any registration or other qualification of such Shares under any state or federal law or regulation or other qualification which the Board shall upon the advice of counsel deem necessary or advisable; and (c) The obtaining of any other required consent or approval or permit from any state or federal government agency. 7.5 No right under this Plan shall be transferable or otherwise subject to anticipation, sale, assignment, pledge, encumbrance or charge except by will or the law of descent and distribution. 3 EX-10.27 7 NON-QUALIFIED 401(K) PLAN 1 Exhibit 10.27 STAFFMARK NONQUALIFIED 401(K) PLAN TABLE OF CONTENTS
Page ---- Article 1. Establishment and Purpose........................................1 1.1 Establishment...............................................1 1.2 Purpose.....................................................1 Article 2. Definitions and Construction......................................2 2.1 Definitions.................................................2 2.2 Gender and Number...........................................4 Article 3. Eligibility and Participation.....................................5 3.1 Eligibility.................................................5 3.2 Participation; Classification of Participants...............5 3.3 Active Participation........................................6 Article 4. Contributions.....................................................7 4.1 Participant Contributions...................................7 4.2 Matching Contributions......................................7 4.3 Contribution Elections......................................7 4.4 Special Provisions Relating to Change of Employment Status..7 Article 5. Payment of Benefits..............................................10 5.1 Time of Payments...........................................10 5.2 Designation of Form of Payments............................10 5.3 Death Benefit..............................................11 5.4 Loans......................................................11 5.5 Hardship Withdrawal........................................11 5.6 Withholding of Taxes.......................................11 Article 6. Accounts; Credited Earnings......................................12 6.1 Participant Accounts.......................................12 6.2 Adjustment of Accounts; Account Balances...................12 6.3 Credited Earnings..........................................13 6.4 Vesting....................................................13 6.5 Account Statements.........................................14 Article 7. Administration of the Plan.......................................15 7.1 Administration.............................................15 7.2 Rules; Claims Review Procedures............................15 7.3 Finality of Determinations.................................15 7.4 Indemnification............................................15
2 Article 8. Funding..........................................................16 8.1 Funding....................................................16 Article 9. Amendment; Termination; Merger...................................17 9.1 Amendment and Termination..................................17 9.2 Merger, Consolidation or Sale of Assets....................17 Article 10. Adoption Procedure..............................................18 10.1 Adoption Procedure.........................................18 10.2 Withdrawal of Participating Affiliate......................18 Article 11. General Provisions..............................................19 11.1 Nontransferability.........................................19 11.2 No Guaranty................................................19 11.3 Binding on Employer, Employee, and Their Successors........19 11.4 Incompetency...............................................19 11.5 Severability...............................................20 11.6 Applicable Law.............................................20
3 STAFFMARK NONQUALIFIED 401(K) PLAN (Effective May 1, 1998) Article 1. Establishment and Purpose 1.1 Establishment. STAFFMARK, INC. ("Company") hereby establishes, effective May 1, 1998, a nonqualified savings plan for a select group of management and highly compensated employees ("Plan"). 1.2 Purpose. The Company maintains a tax-qualified defined contribution plan known as the Staffmark 401(k) Savings Plan (hereinafter referred to as the "401(k) Savings Plan"). Under the terms of the 401(k) Savings Plan, before-tax contributions and matching contributions made on behalf of a participant are restricted by the limitations imposed by Sections 401(a)(17), 401(k), 401(m), 402(g), and 415 of the Internal Revenue Code of 1986, as amended ("Code"), as well as additional restrictions on such contributions imposed to help satisfy such Code limitations. Such limitations are hereinafter referred to as "Code/Plan Limitations". It is the intent of this Plan to provide current benefits that are reasonably comparable to those an eligible employee would be able to receive under the 401(k) Savings Plan if it were not for the Code/Plan Limitations. This Plan is unfunded and is maintained by the employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees. Article 2. Definitions and Construction 2.1 Definitions. Whenever used in the Plan, the following terms shall have the meaning set forth below unless otherwise expressly provided: (a) "Account" means the record keeping account which is maintained in the name of a Participant to account for any Contributions and Credited Earnings which may be credited to his Account from time to time, and which consists of the sum of the following subaccounts: (1) "Matching Contribution Account" means that portion of the Participant's Account which represents the Matching Contributions made on his behalf by an Employer under Article 4 and any Credited Earnings; 3 4 (2) "Participant Contribution Account" means that portion of such Participant's Account which represents Participant Contributions made on behalf of such Participant under Article 4 and any Credited Earnings. (b) "Affiliate" means a corporation or non-corporate entity which the Committee determines to be an affiliated entity of the Company. (c) "Beneficiary" means the person or persons designated by a Participant under the Plan to receive the Participant's benefits under the Plan in the event of his death. If no Beneficiary is named, the Participant's spouse shall be the Beneficiary. If the Participant is not survived by a spouse and no Beneficiary is named, the Participant's estate shall be the Beneficiary. (d) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (e) "Code/Plan Limitations" means limitations on Contributions imposed by Code Sections 401(a)(17), 401(k), 401(m), 402(g), and 415, as well as additional restrictions imposed under the 401(k) Savings Plan which limit Participant contributions. (f) "Committee" means the Plan Administration Committee which is responsible for administering the Plan, as provided in Section 7.1. (g) "Company" means Staffmark, Inc., and any successors thereto, as provided in Section 9.2. (h) "Compensation" means a Participant's "Compensation" as defined in the 401(k) Savings Plan for purposes of making before-tax contributions; provided, however, that (i) in lieu of the dollar amount limitation of Code Section 401(a)(17), the limit shall be $250,000; (ii) any income from the Employer deferred with respect to the Plan Year under this Plan or any other plan of deferred compensation shall be included in "Compensation"; and (iii) any distributions from such plans are excluded from "Compensation". (i) "Contributions" means the Contributions provided for pursuant to Article 4, which shall include the following types of Contributions: (1) "Participant Contributions," as described in Section 4.1; and (2) "Matching Contributions," as described in Section 4.2. (j) "Credited Earnings" means the earnings or loss amounts credited to a Participant's Account, as provided in Section 6.3. 2 5 (k) "Eligible Employee" means an Employee of the Company or an Affiliate who is a member of a select group of highly compensated employees or key management and who is designated by the Committee as eligible to participate in the Plan. Section 3.1 provides additional information about Eligible Employees. (l) "Employee" means an individual who is a common law employee of the Company or an Affiliate. (m) "Employer" means the Company and any other employing entity which is an Affiliate and which adopts the Plan in accordance with Section 10.1. (n) "401(k) Savings Plan" means the Staffmark 401(k) Plan as amended from time to time. (o) "Participant" means an Eligible Employee who has become a Participant under the Plan, as described in Section 3.2. (p) "Plan" means the Staffmark Nonqualified 401(k) Plan as set forth herein, and as it may be amended from time to time. (q) "Plan Year" means the 12-month period beginning each January 1 and ending on December 31 of such year, except the first Plan Year, which shall begin on May 1, 1998, and end on December 31, 1998. 2.2 Gender and Number. Except when otherwise indicated by the context, any masculine terminology when used in the Plan shall also include the feminine gender, and the definition of any term in the singular shall also include the plural. Article 3. Eligibility and Participation 3.1 Eligibility. Each Employee who is designated by the Committee as an Eligible Employee shall be eligible to participate in the Plan, and may become a Participant in the Plan as described in Section 3.2. All determinations as to an Employee's status as an Eligible Employee shall be made by the Committee, whose determinations shall be final and binding on all Employees. The Committee shall provide each Eligible Employee with notice of his status as an Eligible Employee, so as to permit such Eligible Employee the opportunity to make the contribution elections provided for under Article 4. Such notice may be given at such time and in such manner as the Committee may determine from time to time. 3.2 Participation; Classification of Participants. Each Eligible Employee may become a Participant under the Plan by electing to become an "Active Participant" as provided in Section 3.3. Such Eligible Employee shall continue as a Participant under the Plan so long as there is a balance credited to his Account under the Plan. There shall be two classifications of Participants under the Plan, as follows: 3 6 (a) "Active" Participant - A Participant shall be an "active" Participant under the Plan at all times when he is both satisfying the requirements of Section 3.3 and he is a Participant with a balance credited to his Account. (b) "Inactive" Participant - A Participant shall be an "inactive" Participant under the Plan during all periods when he has a balance credited to his Account and he is not an Eligible Employee. This classification shall include, without limitation, an Employee other than an Eligible Employee who has a balance credited to his Account. The term "Participant" shall refer to both active and inactive Participants, unless a Participant is separately identified by participation classification. 3.3 Active Participation. An Eligible Employee may elect to become an "Active Participant" under the Plan by filing election(s) to make Participant Contributions under this Plan in accordance with Article 4. Such Eligible Employee shall become an Active Participant under this Plan on the date such election becomes effective, and such Eligible Employee shall remain an Active Participant under this Plan during such times as such election is in effect. As provided in Article 4, only Active Participants shall be eligible to receive Participant Contributions and Matching Contributions under the Plan. Article 4. Contributions 4.1 Participant Contributions. For each Plan Year, each Active Participant may elect to reduce his Compensation by any whole percentage of not less than 1 percent and not exceeding thirty percent (30%) for any pay period for which his election is in effect, and to have the amounts by which his Compensation is so reduced deemed to be contributed on his behalf by his Employer as Participant Contributions under the Plan. These contributions shall be referred to as "Salary Deferral Contributions." All elections with respect to Salary Deferral Contributions shall be made in accordance with the provisions of Sections 4.3 and 4.4. 4.2 Matching Contributions. For each Plan Year, each Employer shall allocate deemed Matching Contributions on behalf of each Active Participant employed by such Employer in an amount equal to 50% of the Participant's Salary Deferral contributions up to 6% of Compensation, subject to a maximum matching contribution of $5,000 per Plan Year. 4.3 Contribution Elections. All elections to make Participant Contributions as provided for under Section 4.1 shall be made on a contribution election form as prescribed by the Committee. All such contribution elections must be made before December 31 for the following Plan Year, and shall become irrevocable for the subject Plan Year once the Plan Year has commenced. Once a Participant has made an election, the Committee may allow the election to continue for subsequent 4 7 periods, provided that (1) the Participant shall be given notice of his ability to change or revoke his election by each December 31 for the following Plan Year and (2) once the Plan Year begins, the election is irrevocable for the Plan Year. Only Eligible Employees are eligible to file contribution election forms as provided for in this Section 4.3, and inactive Participants are not eligible to file such forms. 4.4 Special Provisions Relating to Change of Employment Status. As provided in Sections 4.1, 4.2, and 4.3, only Eligible Employees are eligible to make Participant Contributions elections and receive allocations of Matching Contributions. The provisions of this Section 4.4 shall apply where an Eligible Employee has a change of employment status during a Plan Year, as described below: (a) New Eligible Employee. If an individual first becomes an Eligible Employee during a Plan Year, he shall be permitted to make a Participant Contribution election for the remaining payroll periods of such Plan Year. To make such election, the Eligible Employee must file the appropriate contribution election form with the Committee no later than 30 days after the date on which he became such an Eligible Employee, and such election shall remain in effect for each payroll period beginning after the date he files such form and beginning within the subject Plan Year. The maximum Participant Contributions which may be made for such an Active Participant shall be determined as provided in Section 4.1 based on Compensation for payroll periods after his deferral election becomes effective. A contribution election as described in this Section 4.4 shall become irrevocable when the appropriate form is filed with the Committee. Except where specifically provided in this Section 4.4(a), the remaining provisions of this Article 4 relating to contribution elections shall apply to elections under this Section 4.4(a). (b) Cessation of Status as Eligible Employee. If an Eligible Employee with a contribution election in effect for a particular Plan Year shall cease to be an Eligible Employee during such Plan Year, but remain an Employee, his applicable contribution election shall remain in effect for the balance of such Plan Year, or until the date he ceases to be an Employee, if earlier. In any case where an Eligible Employee has any contribution election in effect for a Plan Year, and he terminates employment as an Employee during such Plan Year, any contribution election in effect for such Plan Year shall cease with the close of the payroll period in which he terminates employment, and any contribution election in effect for such Plan Year shall be void with respect to any Compensation awarded during the remainder of the Plan Year and after his termination of employment. The provisions in the next preceding sentence only relate to the discontinuance of the contribution elections for 5 8 the remainder of the Plan Year in which the Employee terminates employment. Amounts deferred under any such election prior to its discontinuance shall be payable as provided in Article 5. Article 5. Payment of Benefits 5.1 Time of Payments. A Participant shall become eligible to receive a distribution of his vested interest in his Account under the Plan as soon as administratively feasible after the date the Participant terminates employment with the Company and all of its Affiliates. All amounts in the Participant's Account which have not been paid as of the Participant's death shall be paid to his Beneficiary. Except as provided in this section, Section 5.3, Section 5.5, and Sections 9.1 and 9.2, no distributions shall be permitted to a Participant. 5.2 Designation of Form of Payments. At the time of initial participation, each Participant shall make an election as to the form of payment of all amounts thereafter credited his Account. In making such designation, the Eligible Employee may designate payment in the form of a single lump sum payment or payment in the form of annual installment payments payable for not less than two but not more than fifteen (15) years. The single lump sum payment shall be paid on the date determined under Section 5.1. Annual installment payments shall be paid on the date determined in Section 5.1 and subsequent anniversaries of such date. If for any reason the Eligible Employee fails to make an effective designation under this Section 5.2, payment of his account shall be made in the form of a single lump sum payment on the date determined in accordance with Section 5.1. A Participant who has not terminated employment may change the form of distribution to a different permissible form of election at any time; provided, however, that for the change in election to be effective, it must have been on file with the Committee for at least one (1) year before termination of employment. If a Participant changes the form of distribution and subsequently becomes entitled to a distribution in less than one year, the change shall be disregarded, and distribution shall be made under the previous form elected. 5.3 Death Benefit. If a Participant shall die with a balance credited to his account, the vested balance shall be paid to his Beneficiary. All amounts shall be payable in the form of a single sum payment within thirty (30) days after proof of death is provided to the Committee. 5.4 Loans. A Participant shall not be permitted to borrow from his Account. 5.5 Hardship Withdrawal. A Participant may request a withdrawal from the Participant's Account in the event of a severe financial hardship. The Committee shall have sole discretion as to whether to grant a hardship request. The 6 9 amount of the distribution will be limited to an amount necessary to satisfy the Participant's severe financial hardship. The term "severe financial hardship" means an unforeseeable event resulting from a sudden and unexpected illness or accident of the Participant or dependent, the loss of property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the Participant's control, which the Participant cannot satisfy through available or attainable assets. A severe financial hardship does not include the need to send a child to college or the desire to purchase a home. The Committee will evaluate the facts and circumstances of each hardship request. Any Participant for whom the hardship request is granted will receive a single lump sum payment as soon as practicable following the Committee's determination that a severe financial hardship has been occurred. 5.6 Withholding of Taxes. The Employer shall have the right to deduct from all payments made under the Plan any Federal, state or local taxes required by law to be withheld with respect to such payments. Article 6. Accounts; Credited Earnings 6.1 Participant Accounts. The Committee shall maintain, or cause to be maintained, a bookkeeping Account for each Participant for the purpose of accounting for the Participant's beneficial interest under the Plan, which interest is attributable to Contributions and any Credited Earnings credited to such Participant under the Plan, as adjusted to reflect charges against such Account. The Account maintained for each Participant shall consist of his Participant Contribution Account and his Matching Contribution Account. In addition to the foregoing bookkeeping subaccounts maintained for such Participant, the Committee shall maintain, or cause to be maintained, such other accounts, subaccounts, records or books as it deems necessary to properly provide for the maintenance of Accounts under the Plan, and to carry out the intent and purposes of the Plan. The combination of the accounts for the Participant's Participant Contribution Account and Matching Contribution Account, as applicable, shall comprise the Participant's Account under the Plan. 7 10 6.2 Adjustment of Accounts; Account Balances. Each Participant's Account shall be adjusted to reflect all Contributions credited to his Account, all Credited Earnings credited to his Account, and all benefit payments charged to his Account. A Participant's elected Participant Contributions under Section 4.1 shall be credited to the Participant's Account as of the date on which the amount which is being deferred would have become payable to the Participant in the absence of the subject contribution election, and Matching Contributions under Section 4.2 shall be credited to the Participant's Account as of the date on which matching contributions under the 401(k) Savings Plan with respect to a Plan Year are credited to accounts thereunder. Credited Earnings on the balances in a Participant's Participant Contribution Account and Matching Contribution Account shall be credited to such Accounts as provided in Section 6.3. Charges to a Participant's Account to reflect benefit payments under the Plan shall be made as of the date of any such payment. As of any relevant date, the balance standing to the credit of a Participant's Account, and each separate subaccount comprising such Account, shall be the respective balance in such Account and the component subaccounts as of the close of business on such date, and after all applicable credits and charges have been posted through such date. 6.3 Credited Earnings. Each Participant shall be credited with Credited Earnings on the balances in his Participant Contribution Account and his Matching Contribution Account, and the crediting thereof shall be made to and by reference to the subaccount balances in such Accounts. Such Credited Earnings shall be credited to such Accounts on a daily basis. The amount of credited Earnings shall be the amount which would have been credited had the Accounts been invested in the funds available for investment in the 401(k) Savings Plan, based on the percentages elected by the Participant in a manner provided by the Committee. The percentages may be changed as often as each day. Changes shall be effective as soon as the Committee has a reasonable opportunity to process the election. The Committee shall make all determinations with respect to the crediting of such Credited Earnings to Accounts, and such determinations shall be final and binding on all interested parties. 6.4 Vesting. A Participant shall have a fully vested and nonforfeitable beneficial interest in the balance standing to the credit of his Participant Contribution Account as of any relevant date. A Participant's Matching Contribution Account shall be subject to the same vesting provisions as any employer matching contribution under the 401(k) Savings Plan, including any provisions which accelerate vesting upon the occurrence of a specified event. If a Participant terminates 8 11 employment with the Employer prior to becoming 100% vested in his Matching Contribution Account, the unvested amounts shall be forfeited. All benefits are subject to the conditions and limitations as provided in the Plan. 6.5 Account Statements. The Committee shall provide each Participant with a statement of the status of his Account under the Plan. The Committee shall provide such statement annually or at such other times as the Committee may determine from time to time, and such statement shall be in the format as prescribed by the Committee. Article 7. Administration of the Plan 7.1 Administration. The Plan shall be administered by the Plan Administration Committee ("Committee"). The members of the Committee shall be appointed by the Board from time to time. A majority of the members of the Committee shall constitute a quorum and the acts of a majority of the members present, or acts approved in writing by a majority of the members without a meeting, shall be the acts of the Committee. The Committee shall have that authority which is expressly stated in the Plan as vested in the Committee, and authority to make rules to administer and interpret the Plan, to decide questions arising under the Plan, and to take such other action as may be appropriate to carry out the purposes of the Plan. 7.2 Rules; Claims Review Procedures. The Committee shall adopt and establish such rules and regulations with respect to the administration of the Plan as it deems necessary and appropriate. The Committee shall also prescribe such deferral election forms and other administrative forms as it deems necessary to carry out the provisions of the Plan. The Committee shall establish a claims procedure and a claims review procedure to be applicable under the Plan. 7.3 Finality of Determinations. All determinations of the Committee as to any matter arising under the Plan, including questions of construction and interpretation shall be final, binding and conclusive upon all interested parties. 7.4 Indemnification. To the extent permitted by law and the Employer's by-laws, the members of the Committee, its agents, and the officers, directors and employees of the Employer shall not be liable for any act or failure to act hereunder, except for gross negligence or fraud. Article 8. Funding 8.1 Funding. It is intended that the Employer is under a contractual obligation to make the payments from a Participant's Account when due. Except to the extent amounts are paid from the Staffmark Nonqualified 401(k) Trust, all amounts paid under the Plan shall be paid in cash or cash equivalents from the general assets of the Employer. Contributions 9 12 and Credited Earnings shall be reflected on the accounting records of the Employer, as provided for under the Plan, but such records shall not be construed to create, or require the creation of, a trust, custodial or escrow account with respect to any Participant. No Participant shall have any right, title or interest whatsoever in or to any investment reserves, accounts or funds that the Employer may purchase, establish or accumulate to aid in providing the benefit payments described in the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust or a fiduciary relationship of any kind between the Employer and a Participant or any other person. Even with respect to amounts in the Staffmark Nonqualified 401(k) Trust, Participants and Beneficiaries shall not acquire any interest under the Plan greater than that of an unsecured general creditor of the Employer. Article 9. Amendment; Termination; Merger 9.1 Amendment and Termination. The Committee may, at any time and from time to time, modify or amend, in whole or in part, any provision of this plan. The Committee may, at any time, terminate this Plan in its entirety. Notwithstanding any other provision in this paragraph, no modification, amendment, suspension or termination may, without the consent of the Participant (or his Beneficiary in the case of the death of a Participant) reduce the right of the Participant (or his Beneficiary, as the case may be) to a distribution to which he is entitled in accordance with the provisions of the Plan prior to the change. In the event of termination, the Company may make an election to pay all Accounts of Participants immediately, in which case the Company will have no further liability under this Plan. 9.2 Merger, Consolidation or Sale of Assets. In the event that an Employer should be liquidated, dissolved, or become a party to a merger or consolidation where an Employer is not the surviving corporation, the Plan with respect to such Employer shall terminate at the time of such event, unless the successor or acquiring corporation shall elect to continue and carry on the Plan. In the event such Plan termination occurs, the provisions of Section 9.1 relating to Plan terminations shall become applicable, provided that any successor or acquiring corporation may elect to accelerate payments with respect to its Employees under the Plan. Article 10. Adoption Procedure 10.1 Adoption Procedure. With the consent of the Company, any Affiliate may adopt this Plan for a select group of management or highly compensated persons in its employment, on express condition that the Company assumes no liability as a result of any such adoption of this Plan by any other organization and its employees. Such other organization may adopt this Plan by-- 10 13 (a) executing an adoption instrument adopting the Plan with respect to all or any particular classification or classifications of persons in its employment, and agreeing to be bound as a participating Affiliate by all the terms, provisions, conditions, and limitations of the Plan; and (b) compiling and submitting all information required by the Company with reference to persons in its employment eligible for membership in the Plan. The adoption instrument executed by any such organization may contain such changes and variations in Plan terms as may be acceptable to the Company. The adoption instrument shall specify the effective date of such adoption of the Plan and the name of the Plan as it pertains to such adopting organization and its Employees and shall become, as to such organization and persons in its employment, a part of this Plan. 10.2 Withdrawal of Participating Affiliate. Any participating Affiliate may withdraw from the Plan by giving 90 days' notice in writing of its intention to withdraw to the Company, unless a shorter notice shall be agreed to by the Company. The board of directors of the Company may in its absolute discretion terminate any Employer's participation at any time. Article 11. General Provisions 11.1 Nontransferability. No right or interest of any Participant in this Plan shall be assignable or transferable, or subject to any lien, directly, by operation of law, or otherwise, including execution, levy, garnishment, attachment, pledge, and bankruptcy. 11.2 No Guaranty. The Plan is not an employment contract. It does not give to any person the right to be continued in employment, and all Employees remain subject to change of salary, transfer, change of job, discipline, layoff, discharge or any other change of employment status, without regard to the effect such treatment might have upon him as a Participant under the Plan. No person shall at any time have a right to be an Eligible Employee for any Plan Year, even if he was an Active Participant in a prior Plan Year. No provision of this Plan shall entitle an Employee to participate in or receive an Incentive. 11.3 Binding on Employer, Employee, and Their Successors. This Plan shall be binding upon and inure to the benefit of the Employer, its successors and assigns, and the Employee, his heirs, executors, administrators, and legal representatives. The provisions of this Plan shall be applicable with respect to each Employer separately, and amounts payable hereunder shall be paid by the Employer of the particular Employee. 11 14 11.4 Incompetency. If any person entitled to receive any benefits hereunder is, in the judgment of the Committee, legally, physically or mentally incapable of personally receiving and receipting for any distribution, the Committee may make distribution to such other person or persons or institution or institutions as, in the judgment of the Committee, shall then be maintaining or have custody over such distributee. 11.5 Severability. In the event any provision of the Plan shall be held invalid or illegal for any reason, any illegality or invalidity shall not affect the remaining parts of the Plan, but the Plan shall be construed and enforced as if the illegal or invalid provision had never been inserted, and the Company shall have the privilege and opportunity to correct and remedy such questions of illegality or invalidity by amendment as provided in the Plan. 11.6 Applicable Law. This Plan, all documents in connection herewith, and all distributions hereunder shall, insofar as may lawfully be done, be governed, construed, and regulated in accordance with the laws of the State of Arkansas, except to the extent such laws are preempted by applicable Federal law. IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its duly authorized officers on this ________ day of _____________________ 1998, effective as of May 1, 1998. STAFFMARK, INC. By: ----------------------------- Title: -------------------------- 12 EX-27.1 8 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 4,657 0 67,765 1,494 0 77,154 17,816 6,207 297,168 41,191 0 0 0 194 204,466 297,168 146,813 146,813 110,822 25,786 (28) 0 628 9,604 3,938 5,666 0 0 0 5,666 0.29 0.28
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