EXHIBIT 10.1
MEMORANDUM OF UNDERSTANDING
This Memorandum of Understanding ("MOU") is entered into as of March
27, 2003 by and among TEAM America, Inc., an Ohio corporation ("Team"),
Stonehenge Opportunity Fund, LLC, a Delaware limited liability company ("SOF"),
Provident Financial Group, Inc., an Ohio corporation ("PFG"), and Professional
Staff Management, Inc. a Utah corporation ("PSMI"). RECITALS
A. Team has previously issued to SOF, PFG and PSMI (sometimes
collectively, the "Preferred Holders"), respectively, 80,000,
10,000 and 20,000 shares of Team's Series 2000 9.75%
Cumulative Convertible Redeemable Class A Preferred Shares
(the "Class A Preferred"), which constitutes all the issued
and outstanding shares of Class A Preferred.
B. Team has previously issued to SOF, PFG and PSMI, respectively,
warrants to purchase a total of 1,333,333, 148,148 and 296,296
(in each case, subject to adjustment) of Team's Common Shares,
without par value (the "Old Warrants").
C. Team and SOF entered into that certain Bridge Agreement, dated
as of April 9, 2002 (the "Bridge Note"), under which Team is
obligated to pay $1,500,000.00 to SOF and TEAM has other
obligations to SOF. In addition, Team has agreed to pay, or
reimburse SOF for, SOF's attorney fees in the amount of
$17,000.00.
D. Team has negotiated a restructuring (the "Restructuring") of
its Credit Agreement dated December 28, 2000, as amended to
date (the "Senior Credit Agreement"), among Team, The
Provident Bank, The Huntington National Bank ("Huntington
Bank") and the other lenders set forth on Exhibit A to the
Senior Credit
Agreement (collectively, the "Senior Lenders"), which
Restructuring contemplates the execution of a Third Amendment
to the Senior Credit Agreement ("Third Amendment")
restructuring such credit facility into a $6,000,000 Term A
Loan (the "Term Loan A") and a $3,060,175.08 Term B Loan (the
"Term Loan B") and a $914,000 Letter of Credit facility ("LOC
Facility"), on the terms and conditions set forth in the Third
Amendment, a copy of which is attached hereto as Exhibit A.
The Term Loan A, Term Loan B, LOC Facility and other
obligations under the Senior Credit Agreement are collectively
referred to as the Senior Obligations.
E. In order to facilitate the Restructuring, Team and the
Preferred Holders desire to enter into a recapitalization
agreement (the "Recapitalization Agreement") whereby, at the
closing of the transactions contemplated thereunder (the
"Recap Closing"), (i) SOF would exchange the Bridge Note for
the Subdebt Note, as defined below, and (ii) each Preferred
Holder would surrender to Team its shares of Class A Preferred
and the Old Warrants in consideration for Team's issuance of
new preferred shares, new common shares and new warrants, on
the terms and subject to the conditions referred to herein and
to be set forth in the Definitive Documents, as defined below
(the "Recapitalization").
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties agree as follows:
1. At the Recap Closing, Team shall execute and deliver to SOF, as
payee, a new subordinated debt instrument (the "Subdebt Note"), which will
replace the Bridge Note. At the
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Recap Closing, accrued and unpaid interest on the Bridge Note will be waived and
cancelled by SOF. The Subdebt Note shall include, without limitation, the
following terms:
1.1 The Subdebt Note will be subordinate to the Senior
Obligations and the existing Letters of Credit
outstanding in the approximate amount of $2,000,000
to Huntington Bank. The subordination will be on
commercially reasonably terms, including a standstill
period imposed on SOF not to exceed 180 days.
1.2 The Subdebt Note will be in the original principal
amount of $1,517,000.00.
1.3 The Subdebt Note will accrue interest commencing at
the Recap Closing at an annual rate of 200 basis
points over the rate set for the Term Loan B,
compounded annually. The interest rate would increase
to 20% in the event that the Subdebt Note is not paid
when due. The interest shall accrue at such rate but
shall not be paid in cash to the holders of the
Subdebt Note until all of the Senior Obligations have
been paid in full in cash.
1.4 The maturity date of the Subdebt Note will be June
30, 2006, at which time all principal, accrued
interest and other amounts due thereunder will become
due and payable.
1.5 The Subdebt Note will not be convertible to any
equity security of Team. The Subdebt Note will not be
secured by any assets of Team or any of its
subsidiaries.
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1.6 Among other provisions protective of SOF, the Subdebt
Note (and/or the other Definitive Documents, as
defined below) will contain language providing for
the following: (i) cognovit/confession of judgment;
(ii) waiver of the right to a jury trial; (iii)
cross-default with the Term Loan A and Term Loan B
and the documents ancillary thereto; (iv)
representations, warranties, covenants and events of
default comparable to and no more onerous on Team
than those contained in the Senior Credit Agreement.
2. At the Recap Closing, each of the Preferred Holders agrees to
surrender its shares of Class A Preferred and its Old Warrants, including all
rights and powers related thereto, in exchange for both (i) the consideration
referred to in Sections 3 and 4 hereof and (ii) shares of a new issue of Series
2003 Class B Preferred Shares of Team, without par value (the "New Preferred
Shares"). At the Recap Closing, accrued and unpaid dividends on the Class A
Preferred will be waived and cancelled by the Preferred Holders. The Board of
Directors of Team shall take all action necessary to fix the terms of the New
Preferred Shares, which shall include, without limitation, the following terms:
2.1 The New Preferred Shares will have an aggregate
liquidation preference equal to $2,500,000.00 plus
accrued and unpaid dividends.
2.2 The New Preferred Shares will be owned as follows:
72.72% by SOF; 9.095% by PFG; and 18.185% by PSMI.
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2.3 The New Preferred Shares will accrue an annual
cumulative, compound, preferred dividend at the rate
of 200 basis points over the annual interest rate set
for Term Loan B. In the event of a demand for
redemption of New Preferred Shares, as described in
Section 2.4, the dividend rate would increase to 20%
in respect of those New Preferred Shares, until the
liquidation preference thereof is paid in full.
2.4 At any time and from time to time following July 1,
2006, and so long as the Senior Obligations have been
paid in full in cash or otherwise satisfied, the
holders of the New Preferred Shares (the "New
Preferred Holders"), with the consent of holders of
no fewer than 2/3rds of the New Preferred Shares, may
demand that Team redeem all or any portion of the New
Preferred Shares then outstanding for a cash amount
per share (the "Redemption Amount") equal to the
liquidation preference thereof.
2.5 If the funds of Team legally available for the making
of dividends or the purchase of the New Preferred
Shares otherwise contemplated hereunder on a
particular date (after taking into consideration any
legally permissible increase in the fair value of
Team's tangible and intangible assets for this
purpose) are insufficient to make such dividends or
to purchase the total number of New Preferred Shares
to be purchased on such date, or the payment of such
funds would render Team insolvent or be likely to
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cause its auditors to issue an audit opinion with a
"going concern" exception, then, to the extent funds
are legally available or could be paid without
rendering Team insolvent or causing Team's auditors
to issue an audit opinion with a "going concern"
exception ("Available Funds"), such Available Funds
shall be used to make the maximum possible amount of
such dividends or to purchase the maximum possible
number of such New Preferred Shares, as applicable,
in each case ratably among the holders of such New
Preferred Shares entitled to receive such dividends
or the holders of such New Preferred Shares entitled
to be purchased based upon the total amount to be
paid to each such holder. The New Preferred Shares
not purchased in such a case shall remain
outstanding. Thereafter, whenever Team has
accumulated sufficient Available Funds to do so, such
Available Funds shall immediately be used to make
such distributions or dividends or to purchase the
entire balance of the New Preferred Shares that Team
has become obliged to make or purchase but which Team
has not theretofore made or purchased, as applicable,
in each case ratably among the holders of such New
Preferred Shares entitled to receive such
distributions or dividends or the holders of such New
Preferred Shares entitled to be purchased based upon
the total amount to be paid to each such holder.
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2.6 The approval of a majority in interest of the holders
of the New Preferred Shares, voting separately as a
class, will be required for any of the following: (i)
Team to increase the amount of senior debt (i.e., any
indebtedness senior in priority or right of payment
to the Subdebt Note or the New Preferred Shares) to
an amount greater than the outstanding senior debt
under the Term Loan A and the Term Loan B at the date
of the closing of the Restructuring, plus $914,000.00
in outstanding Letters of Credit; (ii) any additional
letters of credit issued by Huntington Bank for the
benefit of Team or its subsidiaries or any additional
equipment lease transactions with Huntington Bank;
(iii) any amendment or change to the rights,
preferences, privileges or powers of the New
Preferred Shares; (iv) any action that authorizes,
creates or issues shares of any class of shares
having rights, preferences, privileges or powers
superior to or on parity with the New Preferred
Shares; (v) any increase or decrease in the
authorized number of New Preferred Shares; (vi) any
sale of all or substantially all of the assets of
Team; (vii) any amendment or waiver of any provisions
of Team's articles of incorporation or code of
regulations that affects the rights, preferences,
privileges or powers of the New Preferred Shares; or
(viii) the payment of any dividend on Team's Common
Shares or any other class of equity securities on a
parity with or junior to the New Preferred Shares.
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The Preferred Holders acknowledge and agree that the New Preferred
Shares will not be convertible to common shares of Team nor any other security
issued by Team, nor will the New Preferred Shares have any voting rights (other
than the approval rights noted above).
3. At the Recap Closing, each of the Preferred Holders, as
additional consideration for the surrender of its shares of Class A Preferred,
will receive the following common shares of Team: SOF will receive 3,560,438
common shares, PFG will receive 444,090 common shares, and PSMI will receive
795,472 common shares (collectively, the "New Common Shares"). The New Common
Shares will be subject to a Registration Rights Agreement to be negotiated in
good faith and executed by the Preferred Holders and Team in form and substance
similar to that certain Registration Rights Agreement, dated as of December 28,
2000, among Team, SOF and PFG.
4. At the Recap Closing, the Preferred Holders will receive
warrants to purchase an aggregate number of common shares of Team (the "New
Warrants"), at a strike price of $0.50 per share, equal to 15% of the fully
diluted common shares of Team immediately subsequent to the Recap Closing, to be
allocated prorata as follows: 72.72% to SOF; 9.095% to PFG; and 18.185% to PSMI.
The fully diluted common shares shall include all then outstanding common
shares, including the New Warrants and any other warrants or other securities
issued in connection with the Restructuring or the Recapitalization, and any
common shares issuable upon exercise of all outstanding options and warrants
with a strike price equal to or less than $1.50, but excluding any common shares
held in treasury or issuable upon exercise of any outstanding options or
warrants with a strike price greater than $1.50. The New Warrants will have a
term of 10 years, be transferable, contain a cashless exercise feature, include
customary anti-dilution terms, and include other customary terms.
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5. The Recapitalization is subject to the approval by the requisite
number of Team shareholders, as required by law or by Team's articles of
incorporation, of amendments to Team's articles of incorporation in order to
create the New Preferred Shares and to opt out of the provisions of O.R.C.
Section 1701.831 and O.R.C. Chapter 1704 (the "Amendments"). Team agrees to use
its best efforts to cause its shareholders to take all necessary actions,
including adopting the Amendments, to permit the transactions contemplated by
the Recapitalization Agreement to be consummated, including the issuance of the
New Preferred Shares, the New Common Shares and the New Warrants at its next
shareholders' meeting. The Preferred Holders hereby agree, and those persons
listed on Exhibit B hereto agree, to execute a Voting Agreement by which, among
other things, the shareholders signatory thereto agree to vote any common shares
owned by such shareholder in favor of Recapitalization Agreement and any other
related shareholder action (the "Voting Agreement").
6. Team will use its best efforts in accordance with law and Team's
code of regulations ("Code of Regulations") to cause its Board of Directors to
be reduced to seven (7) members and have Mr. Tetzlaff, Ms. Faulkner, Mr.
Mancuso, Mr. Thomas and Mr. Strauss resign. Team will use its best efforts to
cause the Board to initially consist of Team's CEO and CFO, Mr. Robbins, Mr.
McCreary and Mr. Jessee, and have a nominating committee undertake to find two
(2) more independent Board Members reasonably acceptable to the chief executive
officer of Team. Team will use its best efforts to cause its Code of Regulations
to be amended accordingly. The Voting Agreement described in Section 5 hereto,
will obligate each shareholder signatory to vote for a Board of Directors as set
forth in this Section 5.
7. Team's Board of Directors will have the right to retain counsel
independent from Team at any time the Board deems it prudent to retain such
outside counsel, at Team expense.
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8. Each party hereto shall bear its own costs incurred in the
activities under this MOU unless otherwise agreed to in writing by the parties;
provided however, SOF's reasonable legal fees and expenses incurred in
connection with the negotiation and closing of the Restructuring and the
Recapitalization will be paid or reimbursed by Team immediately after Team pays
or reimburses Provident's, PFG's and the Huntington Bank's legal fees and
expenses.
9. At the Recap Closing, the Bridge Note and any interest accrued
thereon, the Class A Preferred and any dividends attributable thereto, the Old
Warrants, and all documents executed incidental with the issuance of the Class A
Preferred (including, without limitation, the Securities Purchase Agreement
dated as of December 28, 2000; the Put Option Agreement dated as of December 28,
2000; the Voting Agreement dated as of December 28, 2000; the Stock Restriction
Agreements dated as of December 28, 2000; the Bridge Agreement and related
Unconditional Guaranty's of Payment and Performance all dated April 9, 2002; the
Amendment to Securities Purchase Agreement dated May 15, 2001; and the Security
Agreement dated May 15, 2001 and related documents) shall be deemed cancelled,
void and of no further force and effect, and SOF shall release any and all
claims, defenses or causes of action which it had, has or may have thereunder or
arising therefrom against Team, its subsidiaries or the Senior Lenders, provided
it receives a mutual release from Team and the Senior Lenders.
10. [Intentionally omitted.]
11. This MOU shall terminate on the first to occur of (a) the mutual
termination of the MOU by the parties hereto; (b) the failure of Team to
consummate the Restructuring in accordance with the Third Amendment by or before
July 31, 2003; (c) the failure of the Closing Conditions, as defined below, to
be met on or before July 31, 2003; or (d) the Recap Closing.
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12. This MOU contemplates the drafting and execution of definitive
documents, including, without limitation, a Recapitalization Agreement, the
Subdebt Note, the terms of the New Preferred Shares and the New Warrants, and a
Voting Agreement, and any other document reasonably necessary to carry out the
purposes of this MOU and reasonably satisfactory to the Senior Lenders
(collectively, the "Definitive Documents"). Upon the execution and delivery of
this MOU by the parties hereto, counsel to SOF shall commence drafting the
Definitive Documents. The Definitive Documents shall contain terms and
provisions customary for such documents, including representations, warranties
and covenants of Team, closing conditions ("Closing Conditions") and closing
deliveries. Without limiting the generality of the foregoing, the Closing
Conditions will include the taking of the actions of the directors and
shareholders of Team as referred to herein, the contemporaneous or prior closing
of the Restructuring and the delivery to SOF, PFG and PSMI of a legal opinion
addressed to them in form and substance reasonably satisfactory to SOF and PFG
rendered by outside Ohio legal counsel to Team reasonably satisfactory to SOF
and PFG, dated the date of the Recap Closing, to the following effects: (i) the
Definitive Agreements have been duly authorized, executed and delivered by Team
and are enforceable against Team, without conflict with Team's governing
Documents, other agreements or applicable law; (ii) the New Preferred Shares and
the New Common Shares issued in the Recapitalization are validly issued and
outstanding, fully paid and non-assessable and that there is no impairment on
the ability to vote the New Common Shares or the New Preferred Shares (in
accordance with their terms) under Ohio law; (iii) the New Warrants are
exercisable in accordance with their terms and the shares issuable upon exercise
of the New Warrants will be validly issued and outstanding, fully paid and
non-assessable and that there will be no impairment on our ability to vote such
shares under Ohio law; and (iv) such other matters
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of law as SOF or PFG may reasonably request. Also, SOF and PFG shall have the
right to review in advance and provide comments to the proxy solicitation
materials to be used by Team in respect of seeking the shareholder approvals
contemplated hereunder, and Team shall incorporate into those documents
commercially reasonable comments thereto provided by SOF or PFG. Any dispute
concerning the terms of the Definitive Documents shall be resolved as provided
in Section 17. The parties shall act in good faith and cooperate reasonably to
complete the transactions contemplated by this MOU and shall execute such other
and further documents as may be required to accomplish such purposes.
13. This MOU is binding on all parties hereto. This MOU and any
Definitive Documents shall be governed by and construed in accordance with the
internal laws of the Sate of Ohio, without regard to conflicts of law
principles.
14. No amendment or modification of this MOU shall be effective unless
approved in writing by all parties hereto.
15. Each party hereto represents and warrants that it has the requisite
authority to enter into this MOU, and this MOU shall be binding upon and
enforceable against such signatory hereto.
16. No party may assign this MOU or any of its rights or obligations
under this MOU.
17. Any controversy or claim arising out of or relating to this MOU or
the specific terms of the Definitive Documents shall be settled by arbitration
in accordance with the following provisions:
(a) Disputes Covered. The agreement of the parties to
arbitrate covers all disputes concerning the specific
terms of the Definitive Documents. In addition, the
arbitrators selected according to procedures set
forth below
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shall determine the arbitrability of any matter
brought to them, and their decision shall be final
and binding on the parties.
(b) Forum. The forum for the arbitration shall be
Columbus, Ohio.
(c) Law. The governing law for the arbitration shall be
the law of the State of Ohio, without reference to
its conflicts of law provisions.
(d) Selection. There shall be three arbitrators, unless
the parties are able to agree on a single arbitrator.
In the absence of such agreement within ten (10) days
after the initiation of an arbitration proceeding,
SOF or PFG shall select one arbitrator and Team shall
select one arbitrator, and those two arbitrators
shall then select, within ten (10) days, a third
arbitrator. If those two arbitrators are unable to
select a third arbitrator within such ten (10)-day
period, a third arbitrator shall be appointed by the
commercial panel of the American Arbitration
Association. The decision in writing of at least two
of the three arbitrators shall be final and binding
upon the parties.
(e) Administration. The arbitration shall be administered
by the American Arbitration Association.
(f) Rules. The rules of arbitration shall be the
Commercial Arbitration Rules of the American
Arbitration Association, as modified by any other
instructions that the parties may agree upon at the
time, except that each party shall have the right to
conduct discovery in any manner and to the extent
authorized by the Federal Rules of Civil Procedure as
interpreted by
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the federal courts. If there is any conflict between
those Rules and the provisions of this section, the
provisions of this section shall prevail.
(g) Substantive Law. The arbitrators shall be bound by
and shall strictly enforce the terms of this MOU and
may not limit, expand or otherwise modify its terms.
The arbitrators shall make a good faith effort to
apply substantive applicable law, but an arbitration
decision shall not be subject to review because of
errors of law. The arbitrators shall be bound to
honor claim of privilege or work-product doctrine
recognized at law, but the arbitrators shall have the
discretion to determine whether any such claim of
privilege or work product doctrine applies.
(h) Decision. The arbitrators' decision shall provide a
reasoned basis for the resolution of each dispute and
for any award. The arbitrators shall not have power
to award damages in connection with any dispute in
excess of actual compensatory damages and shall not
multiply actual damages or award consequential or
punitive damages.
(i) Expenses. Each party shall bear its own fees and
expenses with respect to the arbitration and any
proceeding related thereto and the parties shall
share equally the fees and expenses of the American
Arbitration Association and the arbitrators.
(j) Remedies; Award. The arbitrators shall have power and
authority to award any remedy or judgment that could
be awarded by a court of law in Franklin County,
Ohio. The award rendered by arbitration shall be
final
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and binding upon the parties, and judgment upon the
award may be entered in any court of competent
jurisdiction in the United States.
18. This MOU may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
19. This MOU shall not be construed against Team or any party by reason
of Team and/or such party having caused this MOU to be drafted.
IN WITNESS WHEREOF, this Memorandum of Understanding is duly executed by the
parties as of the date first written above.
TEAM AMERICA, INC.
By: ____________________________
STONEHENGE OPPORTUNITY FUND, LLC
By: ____________________________
PROVIDENT FINANCIAL GROUP, INC.
By: ____________________________
PROFESSIONAL STAFF MANAGEMENT, INC.
By: ____________________________
SOLEY FOR PURPOSES OF
SECTION 5. OF THIS MOU:
_______________________________
S. Cash Nickerson
_______________________________
Jay R. Strauss
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EXHIBIT B
S. Cash Nickerson
Jay R. Strauss
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PSMI ADDENDUM
1. Notwithstanding anything to the contrary contained in the MOU, the
Articles of Incorporation of Team, the Code of Regulations of Team or
any other written agreement entered into by Team or any shareholders of
Team, Team and PSMI hereby agree that, upon a Sale or Liquidation Event
(as defined in Paragraph 3 of this Addendum), or the execution of a
legally binding agreement to effect a Sale or Liquidation Event by Team
or any shareholders of Team, PSMI shall be entitled to receive an
additional payment of consideration as set forth below (the "Additional
Consideration Payment") for the surrender its shares of Class A
Preferred and its Old Warrants in connection with the MOU and
Recapitalization Agreement. The Additional Consideration Payment will
equal the difference between (A) $2,604,363 and (B) (i) the value
received by PSMI, whether in cash or assets, for its New Preferred
Shares in connection with such Sale or Liquidation Event, plus (ii) the
value received by PSMI, whether in cash or assets, for the common
shares and New Warrants issued to PSMI under the MOU in connection with
such Sale or Liquidation Event; provided, however, that PSMI shall
receive such Additional Consideration Payment only if funds are
available for distribution to Team's common shareholders after the Term
A, Term B, LOC Facility, Subdebt Note and New Preferred Shares have
been paid in full, and all obligations of Team under credit or letter
of credit arrangements with its Senior Lenders and creditors and to the
holders of New Preferred Shares have been released (excluding those
obligations set forth in this Addendum); provided, further, that there
shall be no Additional Consideration Payment to PSMI if the amount
received by PSMI under the foregoing clause (B) equals or exceeds
$2,604,363.
2. If Team receives any cash proceeds from a Sale or Liquidation Event to
which Team is not entitled to receive as a result of the foregoing
provisions in Paragraph 1, Team shall promptly pay over such amounts to
PSMI in accordance with this Addendum, and the Board of Directors,
acting in good faith and in a commercially reasonable manner, shall
determine the appropriate allocation of such cash proceeds in
accordance with the foregoing provisions in the event of a dispute
among the parties concerning the same, and such determination shall be
final and binding on all parties.
3. For all purposes of this MOU and this Addendum, the term "Sale or
Liquidation Event" shall mean: a sale of all or substantially all of
Team's business or assets for and to the extent of cash consideration,
whether such sale is structured as a sale of assets, sale of stock,
merger or consolidation; provided, however, such sale must be
consummated, or a legally binding agreement in connection with such
sale must be executed by Team or any of its shareholders on or before
December 31, 2003.
4. Team agrees to and shall include the foregoing provisions of this
Addendum in an amendment to its Articles of Incorporation or in a
Certificate of Designation relating to PSMI's New Preferred Shares, and
in any other document that Team must file with the State of Ohio in
connection with the Recapitalization Agreement.
5. Team represents and warrants that as of the date of the MOU and this
Addendum, it is not a party to any current binding or nonbinding term
sheet, letter of intent or contract with any
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entity that contemplates a transaction involving the merger, sale,
consolidation or other transfer of all or substantially all of its
assets or stock, except as specifically reflected in the MOU.
6. Unless a Sale or Liquidation Event has occurred, all rights, duties and
obligations of PSMI and Team under this Addendum, or any other written
agreement, including any amendment to Team's Articles of Incorporation,
reflecting the terms of this Addendum, shall terminate automatically as
of 12:01 a.m. January 1, 2004.
TEAM AMERICA, INC.
By:___________________________
PROFESSIONAL STAFF MANAGEMENT, INC.
By: _________________________
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ADDENDUM--Waiver of Dividend
1. All capitalized terms have the same meaning as in the Memorandum of
Understanding dated as of March 27, 2003 ("MOU").
2. Notwithstanding anything to the contrary contained in the MOU, the
Articles of Incorporation of Team, the Code of Regulations of Team or
any other written agreement entered into by Team or any shareholders of
Team, Team and SOF hereby agree that, the dividend attributable to the
Class A Preferred for the period January 1, 2003 through July 31, 2003
is waived.
3. All other terms of the MOU remain in full force and effect.
TEAM AMERICA, INC.
By:___________________________
STONEHENGE OPPORTUNITY FUND, LLP
By: _________________________