-----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, B/P7AqpQfmE3raZAdSxF6qjRfBbhDVXzkyfZnJXDxP7/EJa96R7AK2lqdTNi2yyp qE+R5eBE0nuawM/LIsK99Q== 0001047469-99-005220.txt : 19990215 0001047469-99-005220.hdr.sgml : 19990215 ACCESSION NUMBER: 0001047469-99-005220 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990212 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANALYSTS INTERNATIONAL CORP CENTRAL INDEX KEY: 0000006292 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 410905498 STATE OF INCORPORATION: MN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-04090 FILM NUMBER: 99534463 BUSINESS ADDRESS: STREET 1: 7615 METRO BLVD CITY: MINNEAPOLIS STATE: MN ZIP: 55439 BUSINESS PHONE: 6128974506 MAIL ADDRESS: STREET 1: 7615 METRO BLVD CITY: MINNEAPOLIS STATE: MN ZIP: 55439 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (x) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended December 31, 1998 or ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 0-4090 ANALYSTS INTERNATIONAL CORPORATION Minnesota 41-0905408 7615 Metro Boulevard Minneapolis, MN 55439 (612) 835-5900 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 and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of January 29, 1999, 22,537,600 shares of the Registrant's Common Stock were outstanding. ANALYSTS INTERNATIONAL CORPORATION INDEX Page Number ------ PART I. FINANCIAL INFORMATION: Item 1. Condensed Consolidated Balance Sheets December 31, 1998 (Unaudited) and June 30, 1998 1 Condensed Consolidated Statements of Income Three months and six months ended December 31, 1998 and 1997 (Unaudited) 2 Condensed Consolidated Statements of Cash Flows Six months ended December 31, 1998 and 1997 (Unaudited) 3 Notes to Condensed Consolidated Financial Statements (Unaudited) 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5-7 ANALYSTS INTERNATIONAL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS
December 31, June 30, (In thousands) 1998 1998 ----------- -------- (Unaudited) Current assets: Cash and cash equivalents $ 33,941 $ 11,868 Accounts receivable, less allowance for doubtful accounts 86,052 94,294 Other current assets 4,101 3,808 -------- -------- Total current assets 124,094 109,970 Property and equipment, net 20,321 10,360 Other assets 12,923 12,331 -------- -------- $157,338 $132,661 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $21,477 $21,236 Dividend payable 2,253 1,795 Salaries and vacations 12,158 15,669 Other, primarily self-insured health care reserves 2,954 2,161 Income taxes payable 443 1,635 -------- -------- Total current liabilities 39,285 42,496 Long-term debt 20,000 -- Other long-term liabilities 7,394 7,171 Shareholders' equity 90,659 82,994 -------- -------- $157,338 $132,661 ======== ========
Note: The balance sheet at June 30, 1998 has been taken from the audited financial statements at that date, and condensed. See notes to condensed consolidated financial statements. 1 ANALYSTS INTERNATIONAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Six Months Ended (In thousands except per share amounts) December 31 December 31 ----------------------- ------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- Professional services revenues: Provided directly $118,391 108,344 $241,764 $213,015 Provided through sub-suppliers 34,595 32,921 69,686 63,408 -------- -------- -------- -------- Total revenues 152,986 141,265 311,450 276,423 Expenses: Salaries, contracted services and direct charges 120,434 110,191 244,055 214,762 Selling, administrative and other operating costs 24,681 23,043 49,640 44,994 -------- -------- -------- -------- Total expenses 145,115 133,234 293,695 259,756 -------- -------- -------- -------- Operating income 7,871 8,031 17,755 16,667 Non-operating income 265 353 574 684 -------- -------- -------- -------- Income before income taxes 8,136 8,384 18,329 17,351 Income taxes 3,175 3,353 7,242 6,940 -------- -------- -------- -------- Net income $ 4,961 $ 5,031 $ 11,087 $ 10,411 ======== ======== ======== ======== Per common share: Net income (basic) $ .22 $ .23 $ .49 $ .47 ======== ======== ======== ======== Net income (diluted) $ .22 $ .22 $ .49 $ .46 ======== ======== ======== ======== Dividends paid $ .10 $ .07 $ .18 $ .13 ======== ======== ======== ======== Average common shares outstanding 22,524 22,353 22,503 22,332 ======== ======== ======== ======== Average common and common equivalent shares outstanding 22,664 22,897 22,769 22,828 ======== ======== ======== ========
See notes to condensed consolidated financial statements. 2 ANALYSTS INTERNATIONAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended December 31 --------------------------- (In thousands) 1998 1997 ---- ---- Net cash provided by operating activities $ 17,080 $ 4,224 Cash flows from investing activities: Property and equipment additions (11,751) (2,142) Payments for acquisitions (183) -- -------- ------- Net cash used in investing activities (11,934) (2,142) Cash flows from financing activities: Cash dividends (4,050) (2,977) Proceeds from borrowings 20,000 -- Proceeds from exercise of stock options 977 742 -------- ------- Net cash used in financing activities 16,927 (2,235) Net change in cash and equivalents 22,073 (153) Cash and equivalents at beginning of period 11,868 17,888 -------- ------- Cash and equivalents at end of period $ 33,941 $17,735 ======== =======
See notes to condensed consolidated financial statements. 3 ANALYSTS INTERNATIONAL CORPORATION Notes to Condensed Consolidated Financial Statements (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Condensed Consolidated Financial Statements - The condensed consolidated balance sheet as of December 31, 1998, the condensed consolidated statements of income for the three month and six month periods ended December 31, 1998 and 1997 and the condensed consolidated statements of cash flows for the six month periods then ended have been prepared by the Company, without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and the cash flows at December 31, 1998 and for the periods then ended have been made. New Accounting Standard - In June 1997, the Financial Accounting Standards Board isued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 is not currently applicable for the Company because the Company did not have any items of other comprehensive income in any of the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's June 30, 1998 annual report to shareholders. 2. LONG-TERM DEBT On December 30, 1998 the Company entered into a Notes Purchase Agreement whereby it sold $20,000,000 of 7% Senior Notes due December 30, 2006. Minimum future maturities on these Notes is as follows: 1999, $0; 2000, $0; 2001, $5,250,000; 2002, $4,000,000; 2003, $3,000,000; thereafter, $7,750,000. The agreement contains, among other things, provisions regarding maintenance of working capital and net worth and restrictions on payments of dividends on common stock. The Company's working capital and net worth are substantially in excess of the minimum net requirements and current dividend payments would not be restricted. 3. SHAREHOLDERS' EQUITY
Six Months Ended December 31, 1998 ----------------- (In thousands) Balance at beginning of period $82,994 Cash dividends declared: August 20, 1998 at $.10 per share (2,252) December 17, 1998 at $.10 per share (2,256) Proceeds upon exercise of stock options 977 Stock-based compensation 109 Net income 11,087 ------- Balance at end of period $90,659 =======
4. NET INCOME PER COMMON SHARE Basic and diluted earnings per share are presented in accordance with Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." The difference between average common shares and average common and common equivalent shares is the result of outstanding stock options. 4 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997 CHANGES IN FINANCIAL CONDITION Working capital at December 31, 1998 was $84.8 million, up 25.6% from the $67.5 million at June 30, 1998. This includes cash and cash equivalents of $33.9 million compared to $11.9 million at June 30, 1998 and accounts receivable of $86.1 million compared to $94.3 million at June 30, 1998. The ratio of current assets to current liabilities has increased and the ratio of total assets to total liabilities has decreased since June 30, 1998. On December 30, 1998, the Company entered into a Notes Purchase Agreement whereby it sold $20,000,000 of 7% Senior Notes due December 30, 2006. The increase in working capital and long-term debt and the changes in the ratios are due to the proceeds from the $20 million Note Purchase Agreement which will be used to finance construction costs of the new corporate headquarters building. The Company's primary need for working capital is to support accounts receivable resulting from the growth in its business and to fund the time lag between payroll disbursement and receipt of fees billed to clients. Over the past years, the Company has been able to support the growth in its business with internally generated funds. The Company's sub-supplier contracts are not expected to burden working capital. On August 20, 1998 the Board of Directors increased the regular quarterly dividend to $.10 per share payable November 13, 1998 to shareholders of record on October 30, 1998. The previous dividend rate was $.08 per share. On December 17, 1998 the Board of Directors declared the regular quarterly dividend of $.10 per share payable February 12, 1999 to shareholders of record as of January 29, 1999. In January 1998 the Company entered into an agreement to build a facility for use as its corporate headquarters and its Minneapolis branch operations. The Company expects construction and related costs will be approximately $21,300,000. These costs will be financed through the use of cash reserves and the proceeds of the Notes Purchase Agreement described above. The Company believes funds generated from its business, current cash balances and the above mentioned financing are adequate to meet demands placed upon its resources by its operations, capital investments and the payment of quarterly dividends. The Company intends to achieve Year 2000 compliance by replacing its computer systems with new, Y2K compliant hardware and software. The new hardware/software system was put into production February 1, 1999. The cost of the new system is expected to be approximately $2,500,000, of which $2,400,000 has already been incurred. The Company depends on its computer system for critical business functions, including time record keeping, billing, payroll, and accounts payable and receivable. The loss of these capabilities would have a material adverse impact on the Company. The Company believes, however, its new computer systems will remedy the millennium date change, and accordingly no contingency plan has been developed at this time. If Y2K compliance testing currently being performed exposes weaknesses (Y2K or otherwise) in the new system, the Company intends to develop a contingency plan, which will likely take into account the fact it has a staff of over 4,500 computer programmers as well as a national Y2K practice which can assist in achieving Y2K compliance. The Company's business does not depend on raw materials, parts or other goods supplied by third parties and therefore, the Company believes the inability of its vendors to achieve Y2K compliance would not have a material adverse impact on the Company. The Company does use utility services (electricity, telecommunication, natural gas and the like) for its offices, and interruption of these services could have a material adverse impact on the Company's operations. The inability of the Company's clients to achieve Y2K compliance could have an impact on their ability to pay the 5 Company for the services it renders to them, with consequent adverse impact on the Company's cash flow. Nearly all of the Company's revenue is derived from services rendered to Fortune 1000 companies, and the Company considers it unlikely a material number of its customers would encounter Y2K compliance issues which would prevent them from paying the Company's invoices in a timely manner. The Company's services addressing the Year 2000 problem involve key aspects of its clients' computer systems. A failure in a client's system could result in a claim for substantial damages against the Company, regardless of the Company's responsibility for such failure. Litigation, regardless of its outcome, could result in substantial cost to the Company. Accordingly, any contract liability claim or litigation against the Company could have an adverse effect on the Company's business, operations and financial results. RESULTS OF OPERATIONS Revenues provided directly for the six months ended December 31, 1998 were $241.8 million, an increase of 13.5% over the same period a year ago. Approximately 30% of this increase is the result of an increase in billed hours and 70% from increases in hourly rates. For the three months ended December 31, 1998 revenues provided directly were $118.4 million, an increase of 9.3% over the same period a year ago. Nearly all of this increase is the result of an increase in hourly rates. While the Company has been able to increase rates over the prior year, there can be no assurance the Company will be able to continue this as competitive conditions in the industry make it difficult for the Company to continually increase the hourly rates it charges for services. Revenues provided through sub-suppliers for the six month period and quarter ended December 31, 1998 were $69.7 and $34.6 million, respectively. This represents increases of 9.9% and 5.1% over the same periods a year ago. These increases in sub-supplier revenues resulted almost exclusively from an increase in billable hours of service rendered to clients. Personnel totalled 5,000 at December 31, 1998, compared to 5,050 at December 31, 1997, a decrease of 1.0%. Salaries, contracted services and direct charges, which represent primarily the Company's direct labor cost, were 78.4% of revenues for the six months ended December 31, 1998 compared to 77.7% for the same period a year ago. These costs were 78.7% of revenues for the three months ended December 31, 1998 and 78.0% of revenues for the three months ended December 31, 1997. By comparison, these costs were 78.0% of revenues for the first quarter of fiscal 1999 and 77.4% of revenues for the first quarter of fiscal 1998. The increase in this expense category as a percentage of revenues is mostly a consequence of increased idle time and increases in labor costs. The Company's efforts to control these costs involve controlling labor costs, passing on labor cost increases through increased billing rates where possible, and maintaining productivity levels of its billable technical staff. Labor costs, however, are difficult to control because the highly skilled technical personnel the Company seeks to hire and retain are in great demand and intense competition in the industry makes it difficult to pass cost increases on to customers, while unfavorable economic conditions could adversely affect productivity. Although the Company has taken steps to control this category of expense, there can be no assurance the Company will be able to maintain or improve this level. Selling, administrative and other operating costs, which include commissions, employee fringe benefits and location costs, represented 15.9% of revenues for the six months ended December 31, 1998 compared to 16.3% for the same period a year ago. These costs were 16.1% of revenues for the three months ended December 31, 1998 and 16.3% of revenues for the three months ended December 31, 1997. While the Company is committed to careful management of these costs, there can be no assurance the Company will be able to maintain these costs at their current relationship to revenues. 6 Net income for the six months ended December 31, 1998 increased 6.5% over the same period a year ago. As a percentage of revenue, net income has decreased from 3.8% for the six months ended December 31, 1997 to 3.6% for the six months ended December 31, 1998. Net income for the quarter, as a percentage of revenues, also decreased from 3.6% for the three months ended December 31, 1997 to 3.2% for the three months ended December 31, 1998. The Company's net income as a percentage of revenues provided directly was 4.6% for the six months ended December 31, 1998 compared to 4.9% for the same period a year ago. The Company's net income as a percentage of revenues provided directly for the three months ended December 31, 1998 and 1997 was 4.2% and 4.6%, respectively. 7 PART II. OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the annual meeting of shareholders held October 15, 1998, the following action was taken: (a) Election of directors. The following nominees, all of whom were listed in the company's proxy statement prepared in accordance with Regulation 14(a), were elected: Nominee Votes for Authority withheld ------- --------- ------------------ V. C. Benda 19,590,395 258,886 M. A. Loftus 19,592,412 256,869 W. K. Drake 19,584,183 265,097 E. M. Mahoney 19,586,244 263,037 F. W. Lang 19,589,854 259,426 R. L. Prince 19,591,627 257,654 (b) Ratification of auditors. The shareholders voted their shares to ratify the appointment of Deloitte & Touche LLP by the following vote: In favor 19,723,401 Against 71,979 Abstain 53,899 (c) Increased authorized common shares In favor 18,008,857 Against 1,758,853 Abstain 81,570 There were no broker non-votes. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 3 - Articles of Incorporation, as amended. (b) Exhibit 4(v) - Specimen Note Purchase Agreement and Note, $20,000,000 7% Senior Notes due 12/30/2006. (c) Exhibit 27 - Financial Data Schedule. (d) There were no reports on Form 8-K filed for the six months ended December 31, 1998. 8 CAUTIONARY STATEMENT UNDER THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Statements included in this document may be "forward-looking statements" within the meaning of the term in Section 27A of the Securities Act of 1933 as amended, and of Section 21F of the Securities Exchange Act of 1934, as amended. Additional oral or written forward-looking statements may be made by the Company from time to time, and such statements may be included in documents that are filed with the Securities and Exchange Commission. Words such as "believes," "intends," "possible," "expects," "estimates" "anticipates," or "plans" and similar expressions are intended to identify forward-looking statements, although forward-looking statements may exist without such expressions. Forward-looking statements are based on expectations and assumptions, and they involve risks and uncertainties which could cause results or outcomes to differ materially from expectations. Among the risks and uncertainties important to the Company's business are (i) the continued need of current and prospective customers for the Company's services, (ii) the renewal of contracts with customers, especially major customers, (iii) the cancellation of contracts by customers, especially major customers, (iv), competition, (v) the availability of qualified professional staff, (vi) the Company's ability to increase hourly billing rates as labor and operating costs increase and (vii) the Company's ability to continue to operate its business and support growth with internally generated funds. There may be other factors, such as general economic conditions which affect businesses generally, which may cause results to vary from expectations. 9 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. ANALYSTS INTERNATIONAL CORPORATION (Registrant) Date February 12, 1999 By /s/ Gerald M. McGrath ------------------ ------------------------------------ Gerald M. McGrath Treasurer and Chief Financial Officer Date February 12, 1999 By /s/ Marti R. Charpentier ------------------ ------------------------------------ Marti R. Charpentier Controller and Assistant Treasurer (Chief Accounting Officer) 10 EXHIBIT INDEX Exhibit Number Exhibit Page No.* - -------------- ------- --------- 3 Articles of Incorporation, as amended 15 4(v) Specimen Note Purchase Agreement and Note, 20 $20,000,000 7% Senior Notes due 12/30/06 27 Financial Data Schedule 84 * Page numbers in the sequential numbering system of the manually signed original report. EX-3 2 EXHIBIT 3 Exhibit No. 3 ARTICLES OF INCORPORATION OF ANALYSTS INTERNATIONAL CORPORATION, AS AMENDED We, the undersigned, each being of full age, for the purpose of organizing a corporation under and pursuant to the provisions of the Minnesota Business Corporation Act, do hereby associate ourselves as a body corporate and do hereby adopt the following Articles of Incorporation. ARTICLE I The name of this corporation is "Analysts International Corporation." ARTICLE II The corporation has general business purposes. ARTICLE III The duration of this corporation shall be perpetual. ARTICLE IV The location and post office address of this corporation's registered office in the State of Minnesota shall be 1200 First National Bank Building, Minneapolis, MN 55402. ARTICLE V The total authorized number of shares of the corporation shall be 120,000,000 common shares of the par value of ten cents ($.10) per share. The shareholders shall have no preemptive or other rights to subscribe for any shares, or securities convertible into shares of the corporation. There shall be no cumulative voting of shares of the corporation. The Board of Directors is hereby authorized and empowered to accept or reject subscriptions for shares made after incorporation and to issue authorized but unissued shares from time to time for such consideration as the Board of Directors may determine, but not less than the par value of the shares so issued. The Board of Directors is hereby authorized and empowered to fix the terms, provisions and conditions of options, warrants or rights to purchase or subscribe for shares of the corporation, including the price or prices at which shares may be purchased or subscribed for and to authorize the issuance thereof. ARTICLE VI The amount of stated capital with which the corporation will begin business shall be One Thousand Dollars ($1,000.00). ARTICLE VII The names and post office addresses of the first directors of the corporation are as follows: Robert L. Crosby 1200 First National Bank Building, Minneapolis, MN Robert M. Skare 1200 First National Bank Building, Minneapolis, MN Harold C. Evarts 1200 First National Bank Building, Minneapolis, MN Said directors shall serve until the first annual meeting of shareholders subsequent to incorporation. The number, qualifications, term of office, manner of election and powers and duties of the directors shall be specified by the shareholders in the By-Laws of the corporation. ARTICLE VIII The names and post office addresses of each of the incorporators are as follows: Robert L. Crosby 1200 First National Bank Building, Minneapolis, MN Robert M. Skare 1200 First National Bank Building, Minneapolis, MN Harold C. Evarts 1200 First national Bank Building, Minneapolis, MN ARTICLE IX The holders of a majority of the outstanding shares shall have power to authorize the sale, lease, exchange or other disposal of all or substantially all of the property and assets of this corporation including its good will, to amend the Articles of Incorporation of this corporation and adopt or reject an agreement of consolidation or merger. ARTICLE X The Board of Directors shall have authority to make and alter the By-Laws of this corporation, subject to the power of the shareholders to change or repeal such By-Laws. ARTICLE XI A director of the corporation shall not be personally liable to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director except for liability (i) for any breach of the director's duty of loyalty to the corporation or its shareholders, (ii) for acts or omissions not in good faith or which involved intentional misconduct or a knowing violation of law, (iii) under Section 302A.559 or 80A.23 of the Minnesota Statutes, or (iv) for any transaction from which a director derived an improper personal benefit. If the Minnesota Statutes are amended after approval by the shareholders of this article to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the Minnesota Statutes, as so amended. Any repeal or modification of the foregoing paragraph by the shareholders of the corporation shall not adversely affect any right or protection of a director of the corporation existing at the time of such repeal or modification. IN WITNESS WHEREOF, we have hereunto set our hands and seals this 24th day of March, 1966. /s/ Robert L. Crosby ------------------------------------ Robert L. Crosby /s/ Robert M. Skare ------------------------------------ Robert M. Skare /s/ Harold C. Evarts ------------------------------------ Harold C. Evarts EX-4.V 3 EX-4.V Exhibit 4.(v) ANALYSTS INTERNATIONAL CORPORATION ------------ NOTE PURCHASE AGREEMENT ------------ DATED AS OF DECEMBER 30, 1998 $20,000,000 7.00% SENIOR NOTES DUE DECEMBER 30, 2006 TABLE OF CONTENTS
1. AUTHORIZATION OF NOTES.......................................................................................1 2. SALE AND PURCHASE OF NOTES...................................................................................1 3. CLOSING......................................................................................................1 4. CONDITIONS TO CLOSING........................................................................................2 4.1 Representations and Warranties..........................................................................2 4.2 Performance; No Default.................................................................................2 4.3 Compliance Certificates.................................................................................2 4.4 Opinions of Counsel.....................................................................................2 4.5 Purchase Permitted By Applicable Law, etc...............................................................3 4.6 Payment of Special Counsel Fees.........................................................................3 4.7 Private Placement Number................................................................................3 4.8 Changes in Corporate Structure..........................................................................3 4.9 UCC Searches; Releases..................................................................................3 4.10 Proceedings and Documents...............................................................................4 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................................................4 5.1 Organization; Power and Authority.......................................................................4 5.2 Authorization, etc......................................................................................4 5.3 Disclosure..............................................................................................4 5.4 Organization and Ownership of Shares of Subsidiaries; Affiliates........................................5 5.5 Financial Statements....................................................................................6 5.6 Compliance with Laws, Other Instruments, etc............................................................6 5.7 Governmental Authorizations, etc........................................................................6 5.8 Litigation; Observance of Agreements, Statutes and Orders...............................................6 5.9 Taxes...................................................................................................7 5.10 Title to Property; Leases...............................................................................7 5.11 Licenses, Permits, etc..................................................................................7 5.12 Compliance with ERISA...................................................................................7 5.13 Private Offering by the Company.........................................................................8 5.14 Use of Proceeds; Margin Regulations.....................................................................9 5.15 Existing Indebtedness; Future Liens.....................................................................9 5.16 Foreign Assets Control Regulations, etc.................................................................9 5.17 Status under Certain Statutes..........................................................................10 5.18 Environmental Matters..................................................................................10 5.19 Year 2000..............................................................................................11 6. REPRESENTATIONS OF THE PURCHASERS...........................................................................11 6.1 Purchase for Investment................................................................................11 6.2 Source of Funds........................................................................................11 7. INFORMATION AS TO COMPANY...................................................................................12 7.1 Financial and Business Information.....................................................................12 7.2 Officer's Certificate..................................................................................15 7.3 Inspection.............................................................................................15 8. PREPAYMENT OF THE NOTES.....................................................................................16 8.1 Required Prepayments...................................................................................16 8.2 Optional Prepayments with Make-Whole Amount............................................................17 8.3 Allocation of Partial Prepayments......................................................................17 8.4 Maturity; Surrender, etc...............................................................................17 8.5 Purchase of Notes......................................................................................17 8.6 Make-Whole Amount......................................................................................18 9. AFFIRMATIVE COVENANTS.......................................................................................19 9.1 Compliance with Law....................................................................................19 9.2 Insurance..............................................................................................19 9.3 Maintenance of Properties..............................................................................19 9.4 Payment of Taxes and Claims............................................................................20 9.5 Corporate Existence, etc...............................................................................20 9.6 Fixed Charges Ratio....................................................................................20 9.7 Minimum Current Ratio..................................................................................20 10. NEGATIVE COVENANTS.......................................................................................20 10.1 Transactions with Affiliates...........................................................................20 10.2 Nature of Business.....................................................................................21 10.3 Merger, Consolidation and Sales of Assets..............................................................21 10.4 Limitation on Investments..............................................................................22 10.5 Limitation on Funded Indebtedness......................................................................22 10.6 Limitation on Subsidiary Indebtedness..................................................................23 10.7 Limitation on Liens....................................................................................23 10.8 Consolidated Net Worth.................................................................................25 10.9 Restricted Payments....................................................................................25 10.10 Restrictions on Issuance and Sale of Subsidiary Stock...............................................25 10.11 Sale and Lease Back.................................................................................25 10.12 Subordination of Claims.............................................................................26 10.13 Sale of Accounts....................................................................................26 11. EVENTS OF DEFAULT........................................................................................26 12. REMEDIES ON DEFAULT, ETC.................................................................................28 12.1 Acceleration...........................................................................................28 12.2 Other Remedies.........................................................................................29 12.3 Rescission.............................................................................................29 12.4 No Waivers or Election of Remedies, Expenses, etc......................................................29 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES............................................................30 13.1 Registration of Notes..................................................................................30 13.2 Transfer and Exchange of Notes.........................................................................30 13.3 Replacement of Notes...................................................................................30 14. PAYMENTS ON NOTES........................................................................................31 14.1 Place of Payment.......................................................................................31 14.2 Home Office Payment....................................................................................31 15. EXPENSES, ETC............................................................................................31 15.1 Transaction Expenses...................................................................................31 15.2 Survival...............................................................................................32 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.............................................32 17. AMENDMENT AND WAIVER.....................................................................................32 17.1 Requirements...........................................................................................32 17.2 Solicitation of Holders of Notes.......................................................................33 17.3 Binding Effect, etc....................................................................................33 17.4 Notes held by Company, etc.............................................................................33 18. NOTICES..................................................................................................34 19. REPRODUCTION OF DOCUMENTS................................................................................34 20. CONFIDENTIAL INFORMATION.................................................................................34 21. SUBSTITUTION OF PURCHASER................................................................................35 22. MISCELLANEOUS............................................................................................36 22.1 Successors and Assigns.................................................................................36 22.2 Payments Due on Non-Business Days......................................................................36 22.3 Severability...........................................................................................36 22.4 Construction...........................................................................................36 22.5 Counterparts...........................................................................................36 22.6 Governing Law..........................................................................................37 SCHEDULE A -- INFORMATION RELATING TO PURCHASERS SCHEDULE B -- DEFINED TERMS SCHEDULE 5.3 -- Disclosure Materials SCHEDULE 5.4 -- Subsidiaries of the Company and Ownership of Subsidiary Stock SCHEDULE 5.5 -- Financial Statements SCHEDULE 5.15 -- Existing Indebtedness EXHIBIT 1 -- Form of 7.00% Senior Notes Due December 30, 2006 EXHIBIT 4.4(a) -- Form of Opinion of Special Counsel for the Company
ANALYSTS INTERNATIONAL CORPORATION 7615 Metro Boulevard Minneapolis, Minnesota 55439-3050 7.00% Senior Notes due December 30, 2006 December 30, 1998 TO EACH OF THE PURCHASERS LISTED IN THE ATTACHED SCHEDULE A: Ladies and Gentlemen: Analysts International Corporation, a Minnesota corporation (the "COMPANY"), agrees with you as follows: 1. AUTHORIZATION OF NOTES The Company will authorize the issue and sale of $20,000,000 aggregate principal amount of its 7.00% Senior Notes due December 30, 2006 (the "NOTES", such term to include any such notes issued in substitution therefor pursuant to Section 13 of this Agreement). The Notes shall be substantially in the form set out in Exhibit 1, with such changes therefrom, if any, as may be approved by you and the Company. Certain capitalized terms used in this Agreement are defined in Schedule B; references to a "Schedule" or an "Exhibit" are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement. 2. SALE AND PURCHASE OF NOTES. Subject to the terms and conditions of this Agreement, the Company will issue and sell to each of you and each of you will purchase from the Company, at the Closing provided for in Section 3, Notes in the principal amount specified opposite your respective names in Schedule A at the purchase price of 100% of the principal amount thereof. The obligations of each of you hereunder are several and not joint obligations and each of you shall have no obligation or liability to any Person for the performance or nonperformance by any other purchaser hereunder. 3. CLOSING. The sale and purchase of the Notes to be purchased by you shall occur at the offices of Faegre & Benson, 2200 Norwest Center, 90 South Seventh Street, Minneapolis, Minnesota, 55402 at 10:00 a.m., Minneapolis time, at a closing (the "CLOSING") on December 30, 1998 or on such other Business Day thereafter on or prior to December 31, 1998 as may be agreed upon by the Company and you. At the Closing the Company will deliver to each of you the Notes to be purchased by you in the form of a single Note (or such greater number of Notes in denominations of at least $100,000 as you may request) dated the date of the Closing and registered in your name (or in the name of your nominee), against delivery by you to the Company or its order of immediately available funds in the amount of the purchase price therefor by wire transfer of immediately available funds for the account of the Company to account number 9939-43 at First Chicago NBD Bank, 611 Woodward Avenue, Detroit, Michigan 48232, Transit Routing 072000326. If at the Closing the Company shall fail to tender such Notes to you as provided above in this Section 3, or any of the conditions specified in Section 4 shall not have been fulfilled to your satisfaction, you shall, at your election, be relieved of all further obligations under this Agreement, without thereby waiving any rights you may have by reason of such failure or such nonfulfillment. 4. CONDITIONS TO CLOSING. Your obligation to purchase and pay for the Notes to be sold to you at the Closing is subject to the fulfillment to your satisfaction, prior to or at the Closing, of the following conditions: 4.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company in this Agreement shall be correct when made and at the time of the Closing. 4.2 PERFORMANCE; NO DEFAULT. The Company shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to or at the Closing and after giving effect to the issue and sale of the Notes (and the application of the proceeds thereof as contemplated by Section 5.14) no Default or Event of Default shall have occurred and be continuing. Neither the Company nor any Subsidiary shall have entered into any transaction since the date of the Memorandum that would have been prohibited by Sections 10.1, 10.2, 10.3, 10.4, 10.5, 10.6, 10.7, 10.9, 10.10, 10.11, 10.12 or 10.13 hereof had such Sections applied since such date. 4.3 COMPLIANCE CERTIFICATES. (a) OFFICER'S CERTIFICATE. The Company shall have delivered to you an Officer's Certificate, dated the date of the Closing, certifying that the conditions specified in Sections 4.1, 4.2 and 4.8 have been fulfilled. (b) SECRETARY'S CERTIFICATE. The Company shall have delivered to you a certificate certifying as to the resolutions attached thereto and other corporate proceedings relating to the authorization, execution and delivery of the Notes and this Agreement. 4.4 OPINIONS OF COUNSEL. You shall have received opinions in form and substance satisfactory to you, dated the date of the Closing (a) from Thomas R. Mahler, Esq., counsel for the Company, covering the matters set forth in Exhibit 4.4(a) and covering such other matters incident to the transactions contemplated hereby as you or your counsel may reasonably request (and the Company hereby instructs its counsel to deliver such opinion to you) and (b) from Faegre & Benson LLP, your special counsel in connection with such transactions covering such matters incident to such transactions as you may reasonably request. 4.5 PURCHASE PERMITTED BY APPLICABLE LAW, ETC. On the date of the Closing your purchase of Notes shall (i) be permitted by the laws and regulations of each jurisdiction to which you are subject, without recourse to provisions (such as Section 1405(a)(8) of the New York Insurance Law) permitting limited investments by insurance companies without restriction as to the character of the particular investment, (ii) not violate any applicable law or regulation (including, without limitation, Regulation G, T or X of the Board of Governors of the Federal Reserve System) and (iii) not subject you to any tax, penalty or liability under or pursuant to any applicable law or regulation, which law or regulation was not in effect on the date hereof. If requested by you, you shall have received an Officer's Certificate certifying as to such matters of fact as you may reasonably specify to enable you to determine whether such purchase is so permitted. 4.6 PAYMENT OF SPECIAL COUNSEL FEES. Without limiting the provisions of Section 15.1, the Company shall have paid on or before the Closing the fees, charges and disbursements of your special counsel referred to in Section 4.4 to the extent reflected in a statement of such counsel rendered to the Company at least one Business Day prior to the Closing. 4.7 PRIVATE PLACEMENT NUMBER. A Private Placement number issued by Standard & Poor's CUSIP Service Bureau (in cooperation with the Securities Valuation Office of the National Association of Insurance Commissioners) shall have been obtained for the Notes. 4.8 CHANGES IN CORPORATE STRUCTURE. The Company shall not have changed its jurisdiction of incorporation or been a party to any merger or consolidation and shall not have succeeded to all or any substantial part of the liabilities of any other entity, at any time following the date of the most recent financial statements referred to in Schedule 5.5. 4.9 UCC SEARCHES; RELEASES The Company shall have delivered to you Uniform Commercial Code and State and Federal tax lien searches for the Company and its Subsidiaries from the State of Minnesota, as of a date no more than fifteen days prior to the Closing, certified by a reporting service satisfactory to you, and disclosing no Liens other than Liens permitted by Section 10.7 and liens to be released on or prior to the Closing. The Company shall deliver releases of all liens not permitted by Section 10.7. 4.10 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be satisfactory to you and your special counsel, and you and your special counsel shall have received all such counterpart originals or certified or other copies of such documents as you or they may reasonably request. 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to you that: 5.1 ORGANIZATION; POWER AND AUTHORITY. The Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has the corporate power and authority to own or hold under lease the properties it purports to own or hold under lease, to transact the business it transacts and proposes to transact, to execute and deliver this Agreement and the Notes and to perform the provisions hereof and thereof. 5.2 AUTHORIZATION, ETC. This Agreement and the Notes have been duly authorized by all necessary corporate action on the part of the Company, and this Agreement constitutes, and upon execution and delivery thereof each Note will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 5.3 DISCLOSURE. The Company, through its agent, Norwest Bank Minnesota, N.A. has delivered to you a copy of a Private Placement Memorandum, dated October, 1998 (the "MEMORANDUM"), relating to the transactions contemplated hereby. The Memorandum fairly describes, in all material respects, the general nature of the business and principal properties of the Company and its Subsidiaries. Except as disclosed in Schedule 5.3, this Agreement, the Memorandum, the documents, certificates or other writings delivered to you by or on behalf of the Company in connection with the transactions contemplated hereby and the financial statements listed in Schedule 5.5, taken as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made. Except as disclosed in the Memorandum or as expressly described in Schedule 5.3, or in one of the documents, certificates or other writings identified therein, or in the financial statements listed in Schedule 5.5 or in the due diligence meeting of December 2, 1998, since September 30, 1998, there has been no change in the financial condition, operations, business, properties or prospects of the Company or any Subsidiary except changes that individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. There is no fact known to the Company that could reasonably be expected to have a Material Adverse Effect that has not been set forth herein or in the Memorandum or in the other documents, certificates and other writings delivered to you by or on behalf of the Company specifically for use in connection with the transactions contemplated hereby. 5.4 ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES; AFFILIATES. (a) Schedule 5.4 contains (except as noted therein) complete and correct lists (i) of the Company's Subsidiaries, showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, and the percentage of shares of each class of its capital stock or similar equity interests outstanding owned by the Company and each other Subsidiary, (ii) of the Company's Affiliates, other than Subsidiaries, and (iii) of the Company's directors and senior officers. Except as set forth in Schedule 5.4, the Company does not own, directly or indirectly, any equity interest in any other Person. (b) All of the outstanding shares of capital stock or similar equity interests of each Subsidiary shown in Schedule 5.4 as being owned by the Company and its Subsidiaries have been validly issued, are fully paid and nonassessable and are owned by the Company or another Subsidiary free and clear of any Lien (except as otherwise disclosed in Schedule 5.4). (c) Each Subsidiary identified in Schedule 5.4 is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified as a foreign corporation or other legal entity and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each such Subsidiary has the corporate or other power and authority to own or hold under lease the properties it purports to own or hold under lease and to transact the business it transacts and proposes to transact. (d) No Subsidiary is a party to, or otherwise subject to any legal restriction or any agreement (other than this Agreement, the agreements listed on Schedule 5.4 and customary limitations imposed by corporate law statutes) restricting the ability of such Subsidiary to pay dividends out of profits or make any other similar distributions of profits to the Company or any of its Subsidiaries that owns outstanding shares of capital stock or similar equity interests of such Subsidiary. 5.5 FINANCIAL STATEMENTS. The Company has delivered to each of you copies of the financial statements of the Company and its Subsidiaries listed on Schedule 5.5. All of said financial statements (including in each case the related schedules and notes) fairly present in all material respects the consolidated financial position of the Company and its Subsidiaries as of the respective dates specified in such Schedule and the consolidated results of their operations and cash flows for the respective periods so specified and have been prepared in accordance with GAAP consistently applied throughout the periods involved except as set forth in the notes thereto (subject, in the case of any interim financial statements, to normal year-end adjustments). 5.6 COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC. The execution, delivery and performance by the Company of this Agreement and the Notes will not (i) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any property of the Company or any Subsidiary under, any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter or by-laws, or any other agreement or instrument to which the Company or any Subsidiary is bound or by which the Company or any Subsidiary or any of their respective properties may be bound or affected, (ii) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to the Company or any Subsidiary or (iii) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the Company or any Subsidiary. 5.7 GOVERNMENTAL AUTHORIZATIONS, ETC. No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery or performance by the Company of this Agreement or the Notes. 5.8 LITIGATION; OBSERVANCE OF AGREEMENTS, STATUTES AND ORDERS. (a) There are no actions, suits or proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company or any Subsidiary or any property of the Company or any Subsidiary in any court or before any arbitrator of any kind or before or by any Governmental Authority that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (b) Neither the Company nor any Subsidiary is in default under any term of any agreement or instrument to which it is a party or by which it is bound, or any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority or is in violation of any applicable law, ordinance, rule or regulation (including without limitation Environmental Laws) of any Governmental Authority, which default or violation, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 5.9 TAXES. The Company and its Subsidiaries have filed all tax returns that are required to have been filed in any jurisdiction, and have paid all taxes shown to be due and payable on such returns and all other taxes and assessments levied upon them or their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (i) the amount of which is not individually or in the aggregate Material or (ii) the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which the Company or a Subsidiary, as the case may be, has established adequate reserves in accordance with GAAP. The Company knows of no basis for any other tax or assessment that could reasonably be expected to have a Material Adverse Effect. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of Federal, state or other taxes for all fiscal periods are adequate. The Federal income tax liabilities of the Company and its Subsidiaries have been determined by the Internal Revenue Service and paid for all fiscal years up to and including the fiscal year ended June 30, 1995. 5.10 TITLE TO PROPERTY; LEASES. The Company and its Subsidiaries have good and sufficient title to their respective properties that individually or in the aggregate are Material, including all such properties reflected in the most recent audited balance sheet referred to in Section 5.5 or purported to have been acquired by the Company or any Subsidiary after said date (except as sold or otherwise disposed of in the ordinary course of business), in each case free and clear of Liens prohibited by this Agreement. All leases that individually or in the aggregate are Material are valid and subsisting and are in full force and effect in all material respects. 5.11 LICENSES, PERMITS, ETC. (a) the Company and its Subsidiaries own or possess all licenses, permits, franchises, authorizations, patents, copyrights, service marks, trademarks and trade names, or rights thereto, that individually or in the aggregate are Material, without known conflict with the rights of others; (b) to the best knowledge of the Company, no product of the Company infringes in any material respect any license, permit, franchise, authorization, patent, copyright, service mark, trademark, trade name or other right owned by any other Person; and (c) to the best knowledge of the Company, there is no Material violation by any Person of any right of the Company or any of its Subsidiaries with respect to any patent, copyright, service mark, trademark, trade name or other right owned or used by the Company or any of its Subsidiaries. 5.12 COMPLIANCE WITH ERISA. (a) The Company and each ERISA Affiliate have operated and administered each Plan in compliance with all applicable laws except for such instances of noncompliance as have not resulted in and could not reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans (as defined in Section 3 of ERISA), and no event, transaction or condition has occurred or exists that could reasonably be expected to result in the incurrence of any such liability by the Company or any ERISA Affiliate, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions or to Section 401(a)(29) or 412 of the Code, other than such liabilities or Liens as would not be individually or in the aggregate Material. (b) The present value of the aggregate benefit liabilities under each of the Plans (other than Multiemployer Plans), determined as of the end of such Plan's most recently ended plan year on the basis of the actuarial assumptions specified for funding purposes in such Plan's most recent actuarial valuation report, did not exceed the aggregate current value of the assets of such Plan allocable to such benefit liabilities. The term "BENEFIT LIABILITIES" has the meaning specified in section 4001 of ERISA and the terms "CURRENT VALUE" and "PRESENT VALUE" have the meaning specified in section 3 of ERISA. (c) The Company and its ERISA Affiliates have not incurred withdrawal liabilities (and are not subject to contingent withdrawal liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer Plans that individually or in the aggregate are Material. (d) The expected postretirement benefit obligation (determined as of the last day of the Company's most recently ended fiscal year in accordance with Financial Accounting Standards Board Statement No. 106, without regard to liabilities attributable to continuation coverage mandated by section 4980B of the Code) of the Company and its Subsidiaries is not Material. (e) The execution and delivery of this Agreement and the issuance and sale of the Notes hereunder will not involve any transaction that is subject to the prohibitions of section 406 of ERISA or in connection with which a tax could be imposed pursuant to section 4975(c)(l)(A)-(D) of the Code. The representation by the Company in the first sentence of this Section 5.12(e) is made in reliance upon and subject to (i) the accuracy of your representation in Section 6.2 as to the sources of the funds used to pay the purchase price of the Notes to be purchased by you and (ii) the assumption, made solely for the purpose of making such representation, that Department of Labor Interpretive Bulletin 75-2 with respect to prohibited transactions remains valid in the circumstances of the transactions contemplated herein. 5.13 PRIVATE OFFERING BY THE COMPANY. Neither the Company nor anyone acting on its behalf has offered the Notes or any similar securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, any person other than you and not more than five other Institutional Investors, each of which has been offered the Notes at a private sale for investment. Neither the Company nor anyone acting on its behalf has taken, or will take, any action that would subject the issuance or sale of the Notes to the registration requirements of Section 5 of the Securities Act. 5.14 USE OF PROCEEDS; MARGIN REGULATIONS. The Company will apply the proceeds of the sale of the Notes to finance the purchase of a new office building for the Company's headquarters and for general corporate purposes. No part of the proceeds from the sale of the Notes hereunder will be used, directly or indirectly, for the purpose of buying or carrying any margin stock within the meaning of Regulation G of the Board of Governors of the Federal Reserve System (12 CFR 207), or for the purpose of buying or carrying or trading in any securities under such circumstances as to involve the Company in a violation of Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). As used in this Section, the terms "MARGIN STOCK" and "PURPOSE OF BUYING OR CARRYING" shall have the meanings assigned to them in said Regulation G. 5.15 EXISTING INDEBTEDNESS; FUTURE LIENS. (a) Schedule 5.15 sets forth a complete and correct list of all outstanding Indebtedness of the Company and its Subsidiaries as of December 15, 1998, since which date there has been no Material change in the amounts, interest rates, sinking funds, installment payments or maturities of the Indebtedness of the Company or its Subsidiaries. Neither the Company nor any Subsidiary is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Indebtedness of the Company or such Subsidiary and no event or condition exists with respect to any Indebtedness of the Company or any Subsidiary that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Indebtedness to become due and payable before its stated maturity or before its regularly scheduled dates of payment. (b) Except as disclosed in Schedule 5.15, neither the Company nor any Subsidiary has agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its property, whether now owned or hereafter acquired, to be subject to a Lien not permitted by Section 10.7. 5.16 FOREIGN ASSETS CONTROL REGULATIONS, ETC. Neither the sale of the Notes by the Company hereunder nor its use of the proceeds thereof will violate the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto. 5.17 STATUS UNDER CERTAIN STATUTES. Neither the Company nor any Subsidiary is subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 1935, as amended, the Interstate Commerce Act, as amended, or the Federal Power Act, as amended. 5.18 ENVIRONMENTAL MATTERS. Neither the Company nor any Subsidiary has knowledge of any claim or has received any notice of any claim, and no proceeding has been instituted raising any claim against the Company or any of its Subsidiaries or any of their respective real properties now or formerly owned, leased or operated by any of them or other assets, alleging any damage to the environment or violation of any Environmental Laws, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect. Except as otherwise disclosed to you in writing, (a) neither the Company nor any Subsidiary has knowledge of any facts which would give rise to any claim, public or private, of violation of Environmental Laws or damage to the environment emanating from, occurring on or in any way related to real properties now or formerly owned, leased or operated by any of them or to other assets or their use, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect; (b) neither the Company nor any of its Subsidiaries has stored any Hazardous Materials on real properties now or formerly owned, leased or operated by any of them and has not disposed of any Hazardous Materials in a manner contrary to any Environmental Laws in each case in any manner that could reasonably be expected to result in a Material Adverse Effect; and (c) all buildings on all real properties now owned, leased or operated by the Company or any of its Subsidiaries are in compliance with applicable Environmental Laws, except where failure to comply could not reasonably be expected to result in a Material Adverse Effect. 5.19 YEAR 2000. The Company has implemented a program for analyzing and addressing Year 2000 Issues. The Company has completed and delivered to the Purchasers a copy of its responses to the NAIC Year 2000 Due Diligence Questions, and the Company's responses thereto remain accurate and complete in all material respects. 6. REPRESENTATIONS OF THE PURCHASERS. 6.1 PURCHASE FOR INVESTMENT. Each of you severally and not jointly represents, solely as to yourself that you are purchasing a Note for your own account or for one or more separate accounts maintained by you or for the account of one or more pension or trust funds and not with a view to the distribution thereof, PROVIDED that the disposition of your or their property shall at all times be within your or their control. You understand that the Notes have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law, and that the Company is not required to register the Notes. 6.2 SOURCE OF FUNDS. Each of you severally and not jointly represents, solely as to yourself that at least one of the following statements is an accurate representation as to each source of funds (a "Source") to be used by you to pay the purchase price of the Notes to be purchased by you hereunder: (a) the Source is an "insurance company general account" as defined in Section V(e) of Prohibited Transaction Exemption ("PTE") 95-60 (issued July 12, 1995) and, except as you have disclosed to the Company in writing pursuant to this section (a), the amount of reserves and liabilities for the general account contract(s) held by or on behalf of any employee benefit plan or group of plans maintained by the same employer or employee organization do not exceed 10% of the total reserves and liabilities of the general account (exclusive of separate account liabilities) plus surplus as set forth in the NAIC Annual Statement filed with the state of domicile of the insurer; or (b) the Source is either (i) an insurance company pooled separate account, within the meaning of PTE 90-l (issued January 29, 1990), or (ii) a bank collective investment fund, within the meaning of the PTE 91-38 (issued July 12, 1991) and, except as you have disclosed to the Company in writing pursuant to this paragraph (b), no employee benefit plan or group of plans maintained by the same employer or employee organization beneficially owns more than 10% of all assets allocated to such pooled separate account or collective investment fund; or (c) the Source constitutes assets of an "investment fund" (within the meaning of Part V of the QPAM Exemption) managed by a "qualified professional asset manager" or "QPAM" (within the meaning of Part V of the QPAM Exemption), no employee benefit plan's assets that are included in such investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of Section V(c)(1) of the QPAM Exemption) of such employer or by the same employee organization and managed by such QPAM, exceed 20% of the total client assets managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a person controlling or controlled by the QPAM (applying the definition of "control" in Section V(e) of the QPAM Exemption) owns a 5% or more interest in the Company and (i) the identity of such QPAM and (ii) the names of all employee benefit plans whose assets are included in such investment fund have been disclosed to the Company in writing pursuant to this paragraph (c); or (d) the Source is a governmental plan; or (e) the Source is one or more employee benefit plans, or a separate account or trust fund comprised of one or more employee benefit plans, each of which has been identified to the Company in writing pursuant to this paragraph (e); or (f) the Source does not include assets of any employee benefit plan, other than a plan exempt from the coverage of ERISA. As used in this Section 6.2, the terms "EMPLOYEE BENEFIT PLAN", "GOVERNMENTAL PLAN", "PARTY IN INTEREST" and "SEPARATE ACCOUNT" shall have the respective meanings assigned to such terms in Section 3 of ERISA. 7. INFORMATION AS TO COMPANY. 7.1 FINANCIAL AND BUSINESS INFORMATION. The Company shall deliver to each holder of Notes that is an Institutional Investor: (a) QUARTERLY STATEMENTS -- within 45 days after the end of each quarterly fiscal period in each fiscal year of the Company (other than the last quarterly fiscal period of each such fiscal year), duplicate copies of, (i) consolidated and consolidating balance sheets of the Company and its Subsidiaries as at the end of such quarter, and (ii) consolidated and consolidating statements of income, changes in shareholders' equity and cash flows of the Company and its Subsidiaries, for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter, setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP applicable to quarterly financial statements generally (including, without limitation, footnote disclosure of any matters occurring after the end of the most recent fiscal year which would be required to be disclosed in accordance with GAAP), and certified by a Senior Financial Officer as fairly presenting, in all material respects, the financial position of the companies being reported on and their results of operations and cash flows, subject to changes resulting from year-end adjustments; (b) ANNUAL STATEMENTS -- within 120 days after the end of each fiscal year of the Company, duplicate copies of, (i) consolidated and consolidating balance sheets of the Company and its Subsidiaries, as at the end of such year, and (ii) consolidated and consolidating statements of income, changes in shareholders' equity and cash flows of the Company and its Subsidiaries, for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied (A) by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that such financial statements present fairly, in all material respects, the financial position of the companies being reported upon and their results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances, and (B) a certificate of such accountants stating that they have reviewed this Agreement and stating further whether, in making their audit, they have become aware of any condition or event that then constitutes a Default or an Event of Default, and, if they are aware that any such condition or event then exists, specifying the nature and period of the existence thereof (it being understood that such accountants shall not be liable, directly or indirectly, for any failure to obtain knowledge of any Default or Event of Default unless such accountants should have obtained knowledge thereof in making an audit in accordance with generally accepted auditing standards or did not make such an audit); (c) SEC AND OTHER REPORTS -- promptly upon their becoming available, one copy of (i) each financial statement, report, notice or proxy statement sent by the Company or any Subsidiary to public securities holders generally, and (ii) each regular or periodic report, each registration statement (without exhibits except as expressly requested by such holder), and each prospectus and all amendments thereto filed by the Company or any Subsidiary with the Securities and Exchange Commission (other than registrations of Company benefit plans on form S-8 or similar forms) and of all press releases and other statements made available generally by the Company or any Subsidiary to the public concerning developments that are Material; (d) NOTICE OF DEFAULT OR EVENT OF DEFAULT -- promptly, and in any event within five days after a Responsible Officer becoming aware of the existence of any Default or Event of Default or that any Person has given any notice or taken any action with respect to a claimed default hereunder or that any Person has given any notice or taken any action with respect to a claimed default of the type referred to in Section 11(f), a written notice specifying the nature and period of existence thereof and what action the Company is taking or proposes to take with respect thereto; (e) ERISA MATTERS -- promptly, and in any event within five days after a Responsible Officer becoming aware of any of the following, a written notice setting forth the nature thereof and the action, if any, that the Company or an ERISA Affiliate proposes to take with respect thereto: (i) with respect to any Plan, any reportable event, as defined in Section 4043(b) of ERISA and the regulations thereunder, for which notice thereof has not been waived pursuant to such regulations as in effect on the date hereof; or (ii) the taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; or (iii) any event, transaction or condition that could result in the incurrence of any liability by the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or excise tax provisions, if such liability or Lien, taken together with any other such liabilities or Liens then existing, could reasonably be expected to have a Material Adverse Effect; (f) NOTICES FROM GOVERNMENTAL AUTHORITY -- promptly, and in any event within 30 days of receipt thereof, copies of any notice to the Company or any Subsidiary from any Federal or state Governmental Authority relating to any order, ruling, statute or other law or regulation that could reasonably be expected to have a Material Adverse Effect; (g) RULE 144A - upon the request of the holder of any Note, the Company will provide such holder such financial and other information as such holder may reasonably determine to be necessary to be delivered to a qualified institutional buyer in order to permit compliance with the information requirements of Rule 144A(4) under the Securities Act in connection with the resale of the Notes; and (h) REQUESTED INFORMATION -- with reasonable promptness, such other data and information relating to the business, operations, affairs, financial condition, assets or properties of the Company or any of its Subsidiaries or relating to the ability of the Company to perform its obligations hereunder and under the Notes as from time to time may be reasonably requested by any such holder of Notes. 7.2 OFFICER'S CERTIFICATE. Each set of financial statements delivered to a holder of Notes pursuant to Section 7.1(a) or Section 7.1(b) hereof shall be accompanied by a certificate of a Senior Financial Officer setting forth: (a) COVENANT COMPLIANCE -- the information (including detailed calculations) required in order to establish whether the Company was in compliance with the requirements of Sections 9.6, 9.7, 10.3, 10.4, 10.5, 10.6, 10.7, 10.8, 10.9 and 10.11, during the quarterly or annual period covered by the statements then being furnished (including with respect to each such Section, where applicable, the calculations of the maximum or minimum amount, ratio or percentage, as the case may be, permissible under the terms of such Sections, and the calculation of the amount, ratio or percentage then in existence); and (b) EVENT OF DEFAULT -- a statement that such officer has reviewed the relevant terms hereof and has made, or caused to be made, under his or her supervision, a review of the transactions and conditions of the Company and its Subsidiaries from the beginning of the quarterly or annual period covered by the statements then being furnished to the date of the certificate and that such review shall not have disclosed the existence during such period of any condition or event that constitutes a Default or an Event of Default or, if any such condition or event existed or exists (including, without limitation, any such event or condition resulting from the failure of the Company or any Subsidiary to comply with any Environmental Law), specifying the nature and period of existence thereof and what action the Company shall have taken or proposes to take with respect thereto. 7.3 INSPECTION. The Company shall permit the representatives of each holder of Notes that is an Institutional Investor: (a) NO DEFAULT -- if no Default or Event of Default then exists, at the expense of such holder and upon reasonable prior notice to the Company, to visit the principal executive office of the Company, to discuss the affairs, finances and accounts of the Company and its Subsidiaries with the Company's officers, and (with the consent of the Company, which consent will not be unreasonably withheld) its independent public accountants, and (with the consent of the Company, which consent will not be unreasonably withheld) to visit the other offices and properties of the Company and each Subsidiary, all at such reasonable times and as often as may be reasonably requested in writing; and (b) DEFAULT -- if a Default or Event of Default then exists, at the expense of the Company to visit and inspect any of the offices or properties of the Company or any Subsidiary, to examine all their respective books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers and independent public accountants (and by this provision the Company authorizes said accountants to discuss the affairs, finances and accounts of the Company and its Subsidiaries), all at such times and as often as may be requested. 8. PREPAYMENT OF THE NOTES. 8.1 REQUIRED PREPAYMENTS. On the prepayment dates set forth below, the Company will prepay the principal amounts set forth below (or such lesser principal amount as shall then be outstanding) of the Notes at par and without payment of the Make-Whole Amount or any premium,
PREPAYMENT DATE AMOUNT OF PRINCIPAL PREPAYMENT --------------- ------------------------------ December 30, 2001 $5,250,000 December 30, 2002 $4,000,000 December 30, 2003 $3,000,000 December 30, 2004 $3,000,000 December 30, 2005 $2,500,000
PROVIDED that (i) any partial prepayment of the Notes pursuant to Section 8.2 shall be deemed applied first to the amount due at maturity, and then to the amount of the scheduled principal prepayments required by this Section 8.1 in inverse order of their maturity, and (ii) upon any purchase of the Notes permitted by Section 8.5 the principal amount of each required prepayment of the Notes becoming due under this Section 8.1 on and after the date of such prepayment or purchase shall be reduced in the same proportion as the aggregate unpaid principal amount of the Notes is reduced as a result of such purchase. 8.2 OPTIONAL PREPAYMENTS WITH MAKE-WHOLE AMOUNT. The Company may, at its option, on any interest payment date on or after June 30, 1999, upon notice as provided below, prepay at any time all, or from time to time any part of, the Notes, in an amount not less than $100,000 in the case of a partial prepayment, at 100% of the principal amount so prepaid, plus the Make-Whole Amount determined for the prepayment date with respect to such principal amount. The Company will give each holder of Notes written notice of each optional prepayment under this Section 8.2 not less than 30 days and not more than 60 days prior to the date fixed for such prepayment. Each such notice shall specify such date, the aggregate principal amount of the Notes to be prepaid on such date, the principal amount of each Note held by such holder to be prepaid (determined in accordance with Section 8.3), and the interest to be paid on the prepayment date with respect to such principal amount being prepaid, and shall be accompanied by a certificate of a Senior Financial Officer as to the estimated Make-Whole Amount due in connection with such prepayment (calculated as if the date of such notice were the date of the prepayment), setting forth the details of such computation. Two Business Days prior to such prepayment, the Company shall deliver to each holder of Notes a certificate of a Senior Financial Officer specifying the calculation of such Make-Whole Amount as of the specified prepayment date. 8.3 ALLOCATION OF PARTIAL PREPAYMENTS. In the case of each partial prepayment of the Notes, the principal amount of the Notes to be prepaid shall be allocated among all of the Notes at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof not theretofore called for prepayment. 8.4 MATURITY; SURRENDER, ETC. In the case of each prepayment of Notes pursuant to this Section 8, the principal amount of each Note to be prepaid shall mature and become due and payable on the date fixed for such prepayment, together with interest on such principal amount accrued to such date and the applicable Make-Whole Amount, if any. From and after such date, unless the Company shall fail to pay such principal amount when so due and payable, together with the interest and Make-Whole Amount, if any, as aforesaid, interest on such principal amount shall cease to accrue. Any Note paid or prepaid in full shall be surrendered to the Company and canceled and shall not be reissued, and no Note shall be issued in lieu of any prepaid principal amount of any Note. 8.5 PURCHASE OF NOTES. The Company will not and will not permit any Affiliate to purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of the outstanding Notes except upon the payment or prepayment of the Notes in accordance with the terms of this Agreement and the Notes. The Company will promptly cancel all Notes acquired by it or any Affiliate pursuant to any payment, prepayment or purchase of Notes pursuant to any provision of this Agreement and no Notes may be issued in substitution or exchange for any such Notes. 8.6 MAKE-WHOLE AMOUNT. The term "MAKE-WHOLE AMOUNT" means, with respect to any Note, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of such Note over the amount of such Called Principal, PROVIDED that the Make-Whole Amount may in no event be less than zero. For the purposes of determining the Make-Whole Amount, the following terms have the following meanings: "CALLED PRINCIPAL" means, with respect to any Note, the principal of such Note that is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires. "DISCOUNTED VALUE" means, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on the Notes is payable) equal to the Reinvestment Yield with respect to such Called Principal. "REINVESTMENT YIELD" means, with respect to the Called Principal of any Note, 0.50% over the yield to maturity implied by (i) the yields, as of 10:00 A.M. (New York City time) on the second Business Day preceding the Settlement Date with respect to such Called Principal, as reported by Bloomberg Financial Markets on the display called "Page PX1" for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or (ii) if such yields are not reported as of such time or the yields reported as of such time are not ascertainable, the Treasury Constant Maturity Series Yields reported, for the latest day for which such yields have been so reported as of the second Business Day preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield will be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between (1) the actively traded U.S. Treasury security with the duration closest to and greater than the Remaining Average Life and (2) the actively traded U.S. Treasury security with the duration closest to and less than the Remaining Average Life. "REMAINING AVERAGE LIFE" means, with respect to any Called Principal, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the sum of the products obtained by multiplying (a) the principal component of each Remaining Scheduled Payment with respect to such Called Principal by (b) the number of years (calculated to the nearest one-twelfth year) that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment. "REMAINING SCHEDULED PAYMENTS" means, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date, PROVIDED that if such Settlement Date is not a date on which interest payments are due to be made under the terms of the Notes, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to Section 8.2 or 12.1. "SETTLEMENT DATE" means, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires. 9. AFFIRMATIVE COVENANTS. The Company covenants that so long as any of the Notes are outstanding: 9.1 COMPLIANCE WITH LAW. The Company will and will cause each of its Subsidiaries to comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, including, without limitation, Environmental Laws, and will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that non-compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 9.2 INSURANCE. The Company will and will cause each of its Subsidiaries to maintain, with financially sound and reputable insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated. 9.3 MAINTENANCE OF PROPERTIES. The Company will and will cause each of its Subsidiaries to maintain and keep, or cause to be maintained and kept, their respective properties in good repair, working order and condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times, PROVIDED that this Section shall not prevent the Company or any Subsidiary from discontinuing the operation and the maintenance of any of its properties if such discontinuance is desirable in the conduct of its business and the Company has concluded that such discontinuance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 9.4 PAYMENT OF TAXES AND CLAIMS. The Company will and will cause each of its Subsidiaries to file all tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges, or levies imposed on them or any of their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent and all claims for which sums have become due and payable that have or might become a Lien on properties or assets of the Company or any Subsidiary, PROVIDED that neither the Company nor any Subsidiary need pay any such tax or assessment or claims if (i) the amount, applicability or validity thereof is contested by the Company or such Subsidiary on a timely basis in good faith and in appropriate proceedings, and the Company or a Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of the Company or such Subsidiary or (ii) the nonpayment of all such taxes and assessments in the aggregate could not reasonably be expected to have a Material Adverse Effect. 9.5 CORPORATE EXISTENCE, ETC. The Company will at all times preserve and keep in full force and effect its corporate existence. Subject to Section 10.3, the Company will at all times preserve and keep in full force and effect the corporate existence of each of its Subsidiaries (unless merged into the Company or a Subsidiary) and all rights and franchises of the Company and its Subsidiaries unless, in the good faith judgment of the Company, the termination of or failure to preserve and keep in full force and effect such corporate existence, right or franchise could not, individually or in the aggregate, have a Material Adverse Effect. 9.6 FIXED CHARGES RATIO. The Company will maintain, as of the end of each fiscal quarter of the Company, Consolidated Net Income Available for Fixed Charges for the immediately preceding twelve months at least equal to 300% of Consolidated Fixed Charges for such twelve month period. 9.7 MINIMUM CURRENT RATIO. The Company will at all times maintain a ratio of Consolidated Current Assets to Consolidated Current Liabilities of at least 1.75 to 1.0. 10. NEGATIVE COVENANTS. The Company covenants that so long as any of the Notes are outstanding: 10.1 TRANSACTIONS WITH AFFILIATES. The Company will not and will not permit any Subsidiary to enter into directly or indirectly any transaction or Material group of related transactions (including without limitation the purchase, lease, sale or exchange of properties of any kind or the rendering of any service) with any Affiliate (other than the Company or another Subsidiary), except in the ordinary course and pursuant to the reasonable requirements of the Company's or such Subsidiary's business and upon fair and reasonable terms no less favorable to the Company or such Subsidiary than would be obtainable in a comparable arm's-length transaction with a Person not an Affiliate. 10.2 NATURE OF BUSINESS. The Company will not and will not permit any Subsidiary to engage in any business if, as a result, the general nature of the business, taken on a consolidated basis, which would then be engaged in by the Company and its Subsidiaries taken as a whole would be substantially changed from the general nature of the business engaged in by the Company and its Subsidiaries taken as a whole on the date of this Agreement, except as allowed by Section 10.3. 10.3 MERGER, CONSOLIDATION AND SALES OF ASSETS The Company and its Subsidiaries will not consolidate with or be a party to a merger with any Person or sell, lease, transfer or otherwise dispose of all or any Substantial Part of the assets of the Company and its Subsidiaries; provided, however, that: (a) any Subsidiary may merge or consolidate with or into the Company or any Wholly-Owned Subsidiary so long as for any such merger or consolidation involving the Company, the Company shall be the surviving and continuing corporation; (b) the Company may merge with any other corporation if (i) the Company shall be the surviving corporation or, if the Company shall not be the surviving corporation, the surviving corporation is organized under the laws of the United States and shall assume in writing all obligations of the Company under this Agreement and the Notes, and there shall have been delivered to the holders of the Notes an opinion of independent counsel to such corporation to the effect that such assumption has been duly authorized by all necessary corporate action and is valid, binding and enforceable in accordance with its terms, and (ii) at the time of such merger and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing and the surviving corporation would be permitted to incur at least $1 of additional Funded Indebtedness under Section 10.5 hereof; and (c) any Subsidiary may sell, lease, transfer or otherwise dispose of all or any part of its assets to the Company or any Wholly-Owned Subsidiary. As used in this Section 10.3, a sale or other disposition will be deemed to involve a "Substantial Part" of the assets of the Company and its Subsidiaries if the aggregate book value of all such assets sold during any fiscal year exceeds 10% of Consolidated Total Assets determined at the close of the immediately preceding fiscal year. Excluded from the computation of "Substantial Part" is (i) any sale of inventory or rental equipment, as classified under GAAP, in the ordinary course of business and (ii) any sale of equipment that the Company determines in good faith is obsolete, worn-out or no longer useful in the conduct of the business of the Company and its Subsidiaries. 10.4 LIMITATION ON INVESTMENTS. The Company will not and will not permit any Subsidiary to, make any Investment other than: (a) Investments in property to be used in the ordinary course of business of the Company and its Subsidiaries; (b) current assets arising from the sale of goods and services in the ordinary course of business of the Company and its Subsidiaries; (c) Investments existing on the date hereof in Subsidiaries; (d) Investments in direct obligations of the United States government maturing within three years from the date of issue thereof and repurchase agreements of commercial banks having capital stock and surplus aggregating not less than $100,000,000 to repurchase any such obligations within 90 days of the acquisition thereof; (e) certificates of deposit or banker's acceptances maturing within one year from the date of issue thereof issued by banks having capital and surplus aggregating not less than $100,000,000; (f) commercial paper rated A-1 or P-1 or better by recognized rating services and which matures not more than 270 days after the date of creation thereof; (g) Investments in tax-exempt obligation of any state of the United States of America, or any municipality of any such state, in each case rated "AA" or better by S&P, "AA2" or better by Moody's or an equivalent rating by any other credit rating agency of recognized national standing, provided that such obligations mature within three years from the date of acquisition thereof; and (h) Investments not otherwise permitted by paragraphs (a) through (g) hereof; provided that the aggregate amount of all such Investments at any time outstanding does not exceed 15% of Consolidated Net Worth. 10.5 LIMITATION ON FUNDED INDEBTEDNESS. The Company will not and will not permit any Subsidiary to create, assume, incur or suffer to exist, or in any manner be or become liable in respect of any Funded Indebtedness, except: (a) Funded Indebtedness evidenced by the Notes; (b) other Funded Indebtedness of the Company and any Subsidiary existing at the date of the Closing and set forth on Schedule 5.15 hereto, provided such Funded Indebtedness is paid or prepaid in accordance with its terms; and (c) additional Funded Indebtedness of the Company and its Subsidiaries incurred after the date of the Closing; provided that Consolidated Funded Indebtedness shall at no time exceed 30% of Consolidated Total Capitalization. 10.6 LIMITATION ON SUBSIDIARY INDEBTEDNESS. The Company will not at any time permit any Subsidiary to, directly or indirectly, create, incur, assume, guarantee, have outstanding, or otherwise become or remain directly or indirectly liable with respect to any Indebtedness other than: (a) Indebtedness of Subsidiaries existing at the date of the Closing and set forth on Schedule 5.15 hereto, and any extension, renewal or refunding thereof, provided that the principal amount thereof is not increased; (b) Indebtedness of a Subsidiary owed to the Company or a Wholly-Owned Subsidiary; and (c) Indebtedness of Subsidiaries in addition to that otherwise permitted by paragraphs (a) and (b), provided that the sum of (i) the aggregate outstanding principal amount of all Indebtedness incurred pursuant to this paragraph (c), plus (ii) the aggregate outstanding principal amount of all Indebtedness permitted by paragraph (a) of this Section 10.6, plus (iii) the aggregate outstanding principal amount of all other Indebtedness secured by Liens permitted by paragraphs (d), (e), (g) and (h) of Section 10.7 shall not at any time exceed 10% of Consolidated Total Capitalization. 10.7 LIMITATION ON LIENS. The Company will not and will not permit any Subsidiary to create or incur, or suffer to be incurred or to exist, any Lien on its or their property or assets, including any capital stock of any Subsidiary, whether now owned or hereafter acquired, or upon any income or profits therefrom, or transfer any property for the purpose of subjecting the same to the payments of obligations in priority to the payment of its or their general creditors, or acquire or agree to acquire, or permit any Subsidiary to acquire, any property or assets upon conditional sales agreements or other title retention devices, unless the Notes are equally and ratably secured except: (a) Liens for taxes and assessments or other governmental charges or levies not yet due or which are being contested in good faith by appropriate proceedings promptly initiated and diligently conducted in accordance with Section 9.4 hereof, provided that payment thereof is not at the time required by Section 9.4 hereof; (b) Liens of or resulting from any judgment or award, the time for the appeal or petition for rehearing of which shall not have expired, or in respect of which the Company or a Subsidiary shall at any time in good faith be prosecuting an appeal or a proceeding for a review shall have been secured, provided that payment thereof is not at the time required by Section 9.4 hereof; (c) Liens incidental to the normal conduct of the business or the ownership of properties and assets of the Company or any Subsidiary (including Liens in connection with worker's compensation, unemployment insurance, old age pensions, other social security benefits or obligations and other like laws, warehousemen's, mechanics', materialmen's and attorney's liens and statutory landlord's liens) and Liens to secure statutory obligations, surety, penalty or appeal bonds or other Liens of like general nature incurred in the ordinary course of business and not in connection with the incurrence of Indebtedness and which do not in the aggregate materially impair the use of such property or assets in the operation of the business of the Company, and the Company and its Subsidiaries taken as a whole, or the value of such property or assets for the purposes of such business; provided in each case, the obligation secured is not overdue (or, with respect to warehousemen's, mechanics' and materialmen's lien, not overdue for a period longer than 30 days), or if so overdue, is being contested in good faith by appropriate actions or proceedings; (d) Liens existing at the date of the Closing and set forth on Schedule 5.15 hereto; (e) any Lien renewing, extending or refunding any Lien permitted by paragraph (d) of this Section 10.7, PROVIDED that (i) the principal amount of Indebtedness secured by such Lien immediately prior to such extension, renewal or refunding is not increased or the maturity thereof reduced, (ii) such Lien is not extended to any other property, and (iii) immediately after such extension, renewal or refunding no Default or Event of Default would exist; (f) Liens on property or assets of any Subsidiary securing Indebtedness owing to the Company or to any of its Wholly-Owned Subsidiaries; (g) (i) any Lien in property (other than the land and improvements comprising the Company's office building located at 3601 West 76th Street, Edina, Minnesota 55435) or in rights relating thereto to secure any rights granted with respect to such property in connection with the provision of all or a part of the purchase price or cost of the construction of such property created contemporaneously with, or within 180 days after, such acquisition or the completion of such construction, or (ii) any Lien in property existing in such property at the time of acquisition thereof, whether or not the Indebtedness secured thereby is assumed by the Company or such Subsidiary, or (iii) any Lien existing in the property of a corporation at the time such corporation is merged into or consolidated with the Company or a Subsidiary or at the time of a sale, lease or other disposition of the properties of a corporation or firm as an entirety or substantially as an entirety to the Company or a Subsidiary; provided, however, that the Indebtedness secured by any Lien permitted by this paragraph (g) shall not in the aggregate exceed 100% of the fair market value of the related property; and (h) Liens in addition to those permitted by paragraphs (a) through (g) of this Section 10.7, provided that (A) the aggregate principal amount of all Indebtedness permitted by this paragraph (h) shall at no time exceed 10% of Consolidated Net Worth, and (B) the sum of (i) the aggregate principal amount of all Indebtedness secured by Liens permitted by this paragraph (h), PLUS (ii) the aggregate principal amount of Indebtedness secured by Liens permitted by paragraphs (d), (e), and (g) of this Section 10.7, PLUS (iii) the aggregate amount of all Indebtedness of Subsidiaries permitted by paragraphs (a) and (c) of Section 10.6 shall at no time exceed 10% of Consolidated Total Capitalization. 10.8 CONSOLIDATED NET WORTH. The Company will not permit Consolidated Net Worth to be an amount less than the sum of (a) $74,261,100 plus (b) 50% of its cumulative Consolidated Net Income, but, in each case, only if Consolidated Net Income is a positive number, for each completed fiscal quarter beginning with the fiscal quarter ended December 31, 1998. 10.9 RESTRICTED PAYMENTS. The Company will not declare or pay in any fiscal year, dividends in cash or property (other than dividends consisting of capital stock of the Company or options, warrants and rights to acquire such capital stock), or directly or indirectly purchase, redeem or otherwise retire, any shares of any class of its capital stock (herein collectively called "Restricted Payments") if immediately after giving effect thereto: (a) The aggregate amount of such dividends, purchases or redemptions made after the Closing Date would be greater than the sum of (i) $10,000,000, PLUS (ii) 75% of cumulative Consolidated Net Income earned after September 30, 1998, PLUS (iii) the aggregate net cash proceeds to the Company from the issuance of capital stock after September 30, 1998; or (b) A Default or Event of Default would exist. Notwithstanding the foregoing, the Company may (i) redeem fractional shares and (ii) pay dividends within 60 days of declaration of such dividends so long as the payment of such dividends would have been permitted at the time of declaration. 10.10 RESTRICTIONS ON ISSUANCE AND SALE OF SUBSIDIARY STOCK. The Company will not (i) permit any Subsidiary to issue or sell any shares of its capital stock of any class to any other Person other than the Company, or (ii) sell, transfer or otherwise dispose of any shares of capital stock of any class of any Subsidiary, or permit any Subsidiary to sell, transfer or otherwise dispose of any shares of the capital stock of any other Subsidiary; provided, however, that the Company or any Subsidiary may sell, transfer or dispose of shares of the stock of any Subsidiary subject to the limitations of Section 10.3. 10.11 SALE AND LEASE BACK. The Company will not, and will not permit any Subsidiary to enter into any arrangement with any bank, insurance company or other lender or investor or to which such lender or investor is a party providing for the leasing by the Company or any Subsidiary of real or personal property which has been or is to be sold or transferred by the Company or any Subsidiary to such lender or investor or to any person to whom funds have been or are to be advanced by such lender or investor on the security of such property or rental obligations of the Company or any Subsidiary, unless: (i) the total market value of such sold or transferred property is less than or equal to $1,500,000, or (ii) the sale proceeds are at least equal to fair market value of such sold or transferred property and are applied to the acquisition of assets or the prepayment of the Notes and other Funded Indebtedness of the Company then outstanding, pro rata, based upon the outstanding principal amount thereof. 10.12 SUBORDINATION OF CLAIMS. The Company will not, and will not permit any Subsidiary to subordinate or permit to be subordinated any claim against, or obligation of, another Person held or owned by the Company or any of its Subsidiaries to any other claim against, or obligation of, such other Person. 10.13 SALE OF ACCOUNTS. The Company will not, and will not permit any Subsidiary to, (i) sell with recourse, (ii) discount or otherwise sell for less than 100% of the face value thereof, or (iii) grant any Lien on, any notes receivable or accounts receivable. 11. EVENTS OF DEFAULT. An "EVENT OF DEFAULT" shall exist if any of the following conditions or events shall occur and be continuing: (a) the Company defaults in the payment of any principal or Make-Whole Amount, if any, on any Note when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise; or (b) the Company defaults in the payment of any interest on any Note for more than five days after the same becomes due and payable; or (c) the Company defaults in the performance of or compliance with any term contained in Article 7, Section 9.6 or 9.7, or Article 10; or (d) the Company defaults in the performance of or compliance with any term contained herein (other than those referred to in paragraphs (a), (b) and (c) of this Section 11) and such default is not remedied within 30 days after the earlier of (i) a Responsible Officer obtaining actual knowledge of such default and (ii) the Company receiving written notice of such default from any holder of a Note (any such written notice to be identified as a "notice of default" and to refer specifically to this paragraph (d) of Section 11); or (e) any representation or warranty made in writing by or on behalf of the Company or by any officer of the Company in this Agreement or in any writing furnished in connection with the transactions contemplated hereby proves to have been false or incorrect in any material respect on the date as of which made; or (f) (i) the Company or any Subsidiary is in default (as principal or as guarantor or other surety) in the payment of any principal of or premium or make-whole amount or interest on any Indebtedness that is outstanding in an aggregate principal amount of at least $500,000 beyond any period of grace provided with respect thereto, or (ii) the Company or any Subsidiary is in default in the performance of or compliance with any term of any evidence of any Indebtedness in an aggregate outstanding principal amount of at least $500,000 or of any mortgage, indenture or other agreement relating thereto or any other condition exists, and as a consequence of such default or condition such Indebtedness has become, or has been declared (or one or more Persons are entitled to declare such Indebtedness to be), due and payable before its stated maturity or before its regularly scheduled dates of payment, or (iii) as a consequence of the occurrence or continuation of any event or condition (other than the passage of time or the right of the holder of Indebtedness to convert such Indebtedness into equity interests), (x) the Company or any Subsidiary has become obligated to purchase or repay Indebtedness before its regular maturity or before its regularly scheduled dates of payment in an aggregate outstanding principal amount of at least $500,000 or (y) one or more Persons have the right to require the Company or any Subsidiary so to purchase or repay such Indebtedness; or (g) the Company or any Subsidiary (i) is generally not paying, or admits in writing its inability to pay, its debts as they become due, (ii) files, or consents by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency, reorganization, moratorium or other similar law of any jurisdiction, (iii) makes an assignment for the benefit of its creditors, (iv) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, (v) is adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for the purpose of any of the foregoing; or (h) a court or governmental authority of competent jurisdiction enters an order appointing, without consent by the Company or any of its Subsidiaries, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or constituting an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the Company or any of its Subsidiaries, or any such petition shall be filed against the Company or any of its Subsidiaries and such petition shall not be dismissed within 60 days; or (i) a final judgment or judgments for the payment of money aggregating in excess of $500,000 are rendered against one or more of the Company and its Subsidiaries and which judgments are not, within 30 days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 30 days after the expiration of such stay; or (j) if (i) any Plan shall fail to satisfy the minimum funding standards of ERISA or the Code for any plan year or part thereof or a waiver of such standards or extension of any amortization period is sought or granted under section 412 of the Code, (ii) a notice of intent to terminate any Plan shall have been or is reasonably expected to be filed with the PBGC or the PBGC shall have instituted proceedings under ERISA section 4042 to terminate or appoint a trustee to administer any Plan or the PBGC shall have notified the Company or any ERISA Affiliate that a Plan may become a subject of any such proceedings, (iii) the aggregate "amount of unfunded benefit liabilities" (within the meaning of section 4001(a)(18) of ERISA) under all Plans, determined in accordance with Title IV of ERISA, shall exceed $500,000, (vi) the Company or any ERISA Affiliate shall have incurred or is reasonably expected to incur any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, (v) the Company or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the Company or any Subsidiary establishes or amends any employee welfare benefit plan that provides post-employment welfare benefits in a manner that would increase the liability of the Company or any Subsidiary thereunder; and any such event or events described in clauses (i) through (vi) above, either individually or together with any other such event or events, could reasonably be expected to have a Material Adverse Effect; As used in Section 11(j), the terms "EMPLOYEE BENEFIT PLAN" and "EMPLOYEE WELFARE BENEFIT PLAN" shall have the respective meanings assigned to such terms in Section 3 of ERISA. 12. REMEDIES ON DEFAULT, ETC. 12.1 ACCELERATION. (a) If an Event of Default with respect to the Company described in paragraph (g) or (h) of Section 11 (other than an Event of Default described in clause (i) of paragraph (g) or described in clause (vi) of paragraph (g) by virtue of the fact that such clause encompasses clause (i) of paragraph (g)) has occurred, all the Notes then outstanding shall automatically become immediately due and payable. (b) If any other Event of Default has occurred and is continuing, any holder or holders of more than 50% in principal amount of the Notes at the time outstanding may at any time at its or their option, by notice or notices to the Company, declare all the Notes then outstanding to be immediately due and payable. (c) If any Event of Default described in paragraph (a) or (b) of Section 11 has occurred and is continuing, any holder or holders of Notes at the time outstanding affected by such Event of Default may at any time, at its or their option, by notice or notices to the Company, declare all the Notes held by it or them to be immediately due and payable. Upon any Notes becoming due and payable under this Section 12.1, whether automatically or by declaration, such Notes will forthwith mature and the entire unpaid principal amount of such Notes, plus (x) all accrued and unpaid interest thereon and (y) the Make-Whole Amount determined in respect of such principal amount (to the full extent permitted by applicable law), shall all be immediately due and payable, in each and every case without presentment, demand, protest or further notice, all of which are hereby waived. The Company acknowledges, and the parties hereto agree, that each holder of a Note has the right to maintain its investment in the Notes free from repayment by the Company (except as herein specifically provided for) and that the provision for payment of a Make-Whole Amount by the Company in the event that the Notes are prepaid or are accelerated as a result of an Event of Default, is intended to provide compensation for the deprivation of such right under such circumstances. 12.2 OTHER REMEDIES. If any Default or Event of Default has occurred and is continuing, and irrespective of whether any Notes have become or have been declared immediately due and payable under Section 12.1, the holder of any Note at the time outstanding may proceed to protect and enforce the rights of such holder by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise. 12.3 RESCISSION. At any time after any Notes have been declared due and payable pursuant to clause (b) or (c) of Section 12.1, the holders of not less than 51% in principal amount of the Notes then outstanding, by written notice to the Company, may rescind and annul any such declaration and its consequences if (a) the Company has paid all overdue interest on the Notes, all principal of and Make-Whole Amount, if any, on any Notes that are due and payable and are unpaid other than by reason of such declaration, and all interest on such overdue principal and Make-Whole Amount, if any, and (to the extent permitted by applicable law) any overdue interest in respect of the Notes, at the Default Rate, (b) all Events of Default and Defaults, other than non-payment of amounts that have become due solely by reason of such declaration, have been cured or have been waived pursuant to Section 17, and (c) no judgment or decree has been entered for the payment of any monies due pursuant hereto or to the Notes. No rescission and annulment under this Section 12.3 will extend to or affect any subsequent Event of Default or Default or impair any right consequent thereon. 12.4 NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC. No course of dealing and no delay on the part of any holder of any Note in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder's rights, powers or remedies. No right, power or remedy conferred by this Agreement or by any Note upon any holder thereof shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. Without limiting the obligations of the Company under Section 15, the Company will pay to the holder of each Note on demand such further amount as shall be sufficient to cover all costs and expenses of such holder incurred in any enforcement or collection under this Section 12, including, without limitation, reasonable attorneys' fees, expenses and disbursements. 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES. 13.1 REGISTRATION OF NOTES. The Company shall keep at its principal executive office a register for the registration and registration of transfers of Notes. The name and address of each holder of one or more Notes, each transfer thereof and the name and address of each transferee of one or more Notes shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name any Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the contrary. The Company shall give to any holder of a Note that is an Institutional Investor promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Notes. 13.2 TRANSFER AND EXCHANGE OF NOTES. Upon surrender of any Note at the principal executive office of the Company for registration of transfer or exchange (and in the case of a surrender for registration of transfer, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of such Note or his attorney duly authorized in writing and accompanied by the address for notices of each transferee of such Note or part thereof), the Company shall execute and deliver, at the Company's expense (except as provided below), one or more new Notes (as requested by the holder thereof) in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Note. Each such new Note shall be payable to such Person as such holder may request and shall be substantially in the form of Exhibit 1. Each such new Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Note or dated the date of the surrendered Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of Notes. Notes shall not be transferred in denominations of less than $100,000, PROVIDED that if necessary to enable the registration of transfer by a holder of its entire holding of Notes, one Note may be in a denomination of less than $100,000. Any transferee, by its acceptance of a Note registered in its name (or the name of its nominee), shall be deemed to have made the representation set forth in Section 6.2. 13.3 REPLACEMENT OF NOTES. Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note (which evidence shall be, in the case of an Institutional Investor, notice from such Institutional Investor of such ownership and such loss, theft, destruction or mutilation), and (a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it (provided that if the holder of such Note is, or is a nominee for, an original Purchaser or another holder of a Note with a minimum net worth of at least $50,000,000, such Person's own unsecured agreement of indemnity shall be deemed to be satisfactory), or (b) in the case of mutilation, upon surrender and cancellation thereof, the Company at its own expense shall execute and deliver, in lieu thereof, a new Note, dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or mutilated Note if no interest shall have been paid thereon. 14. PAYMENTS ON NOTES. 14.1 PLACE OF PAYMENT. Subject to Section 14.2, payments of principal, Make-Whole Amount, if any, and interest becoming due and payable on the Notes shall be made at the principal office of the Company. 14.2 HOME OFFICE PAYMENT. So long as you or your nominee shall be the holder of any Note, and notwithstanding anything contained in Section 14.1 or in such Note to the contrary, the Company will pay all sums becoming due on such Note for principal, Make-Whole Amount, if any, and interest by the method and at the address specified for such purpose below your name in Schedule A, or by such other method or at such other address as you shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of such Note or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of any Note, you shall surrender such Note for cancellation, reasonably promptly after any such request, to the Company at its principal executive office or at the place of payment most recently designated by the Company pursuant to Section 14.1. Prior to any sale or other disposition of any Note held by you or your nominee you will, at your election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender such Note to the Company in exchange for a new Note or Notes pursuant to Section 13.2. The Company will afford the benefits of this Section 14.2 to any Institutional Investor that is the direct or indirect transferee of any Note purchased by you under this Agreement and that has made the same agreement relating to such Note as you have made in this Section 14.2. 15. EXPENSES, ETC. 15.1 TRANSACTION EXPENSES. Whether or not the transactions contemplated hereby are consummated, the Company will pay all costs and expenses (including reasonable attorneys' fees of a special counsel and, if reasonably required, local or other counsel, rating fees payable to the NAIC, and expenses incurred in obtaining a private placement number for the Notes) incurred by you and each other holder of a Note in connection with such transactions and in connection with any amendments, waivers or consents under or in respect of this Agreement or the Notes (whether or not such amendment, waiver or consent becomes effective), including, without limitation: (a) the costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Agreement or the Notes or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement or the Notes, or by reason of being a holder of any Note, and (b) the costs and expenses, including financial advisors' fees, incurred in connection with the insolvency or bankruptcy of the Company or any Subsidiary or in connection with any work-out or restructuring of the transactions contemplated hereby and by the Notes. The Company will pay, and will save you and each other holder of a Note harmless from, all claims in respect of any fees, costs or expenses if any, of brokers and finders (other than those retained by you). 15.2 SURVIVAL. The obligations of the Company under this Section 15 will survive the payment or transfer of any Note, the enforcement, amendment or waiver of any provision of this Agreement or the Notes, and the termination of this Agreement. 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All representations and warranties contained herein shall survive the execution and delivery of this Agreement and the Notes, the purchase or transfer by you of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any subsequent holder of a Note, regardless of any investigation made at any time by or on behalf of you or any other holder of a Note. All statements contained in any certificate or other instrument delivered by or on behalf of the Company pursuant to this Agreement shall be deemed representations and warranties of the Company under this Agreement. Subject to the preceding sentence, this Agreement and the Notes embody the entire agreement and understanding between you and the Company and supersede all prior agreements and understandings relating to the subject matter hereof. 17. AMENDMENT AND WAIVER. 17.1 REQUIREMENTS. This Agreement and the Notes may be amended, and the observance of any term hereof or of the Notes may be waived (either retroactively or prospectively), with (and only with) the written consent of the Company and the Required Holders, except that (a) no amendment or waiver of any of the provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any defined term (as it is used therein), will be effective as to you unless consented to by you in writing, and (b) no such amendment or waiver may, without the written consent of the holder of each Note at the time outstanding affected thereby, (i) subject to the provisions of Section 12 relating to acceleration or rescission, change the amount or time of any prepayment or payment of principal of, or reduce the rate or change the time of payment or method of computation of interest or of the Make-Whole Amount on, the Notes, (ii) change the percentage of the principal amount of the Notes the holders of which are required to consent to any such amendment or waiver, or (iii) amend any of Sections 8, 11(a), 11(b), 12, 17 or 20. 17.2 SOLICITATION OF HOLDERS OF NOTES. (a) SOLICITATION. The Company will provide each holder of the Notes (irrespective of the amount of Notes then owned by it) with sufficient information, sufficiently far in advance of the date a decision is required, to enable such holder to make an informed and considered decision with respect to any proposed amendment, waiver or consent in respect of any of the provisions hereof or of the Notes. The Company will deliver executed or true and correct copies of each amendment, waiver or consent effected pursuant to the provisions of this Section 17 to each holder of outstanding Notes promptly following the date on which it is executed and delivered by, or receives the consent or approval of, the requisite holders of Notes. (b) PAYMENT. The Company will not directly or indirectly pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any security, to any holder of Notes as consideration for or as an inducement to the entering into by any holder of Notes of any waiver or amendment of any of the terms and provisions hereof unless such remuneration is concurrently paid, or security is concurrently granted, on the same terms, ratably to each holder of Notes then outstanding even if such holder did not consent to such waiver or amendment. 17.3 BINDING EFFECT, ETC. Any amendment or waiver consented to as provided in this Section 17 applies equally to all holders of Notes and is binding upon them and upon each future holder of any Note and upon the Company without regard to whether such Note has been marked to indicate such amendment or waiver. No such amendment or waiver will extend to or affect any obligation, covenant, agreement, Default or Event of Default not expressly amended or waived or impair any right consequent thereon. No course of dealing between the Company and the holder of any Note nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights of any holder of such Note. As used herein, the term "THIS AGREEMENT" and references thereto shall mean this Agreement as it may from time to time be amended or supplemented. 17.4 NOTES HELD BY COMPANY, ETC. Solely for the purpose of determining whether the holders of the requisite percentage of the aggregate principal amount of Notes then outstanding approved or consented to any amendment, waiver or consent to be given under this Agreement or the Notes, or have directed the taking of any action provided herein or in the Notes to be taken upon the direction of the holders of a specified percentage of the aggregate principal amount of Notes then outstanding, Notes directly or indirectly owned by the Company or any of its Affiliates shall be deemed not to be outstanding. 18. NOTICES. All notices and communications provided for hereunder shall be in writing and sent (a) by telecopy if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail with return receipt requested (postage prepaid), or (c) by a recognized overnight delivery service (with charges prepaid). Any such notice must be sent: (i) if to you or your nominee, to you or it at the address specified for such communications in Schedule A, or at such other address as you or it shall have specified to the Company in writing, (ii) if to any other holder of any Note, to such holder at such address as such other holder shall have specified to the Company in writing, or (iii) if to the Company, to the Company at its address set forth at the beginning hereof to the attention of Gerald M. McGrath, or at such other address as the Company shall have specified to the holder of each Note in writing. Notices under this Section 18 will be deemed given only when actually received. 19. REPRODUCTION OF DOCUMENTS. This Agreement and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications that may hereafter be executed, (b) documents received by you at the Closing (except the Notes themselves), and (c) financial statements, certificates and other information previously or hereafter furnished to you, may be reproduced by you by any photographic, photostatic, microfilm, microcard, miniature photographic or other similar process and you may destroy any original document so reproduced. The Company agrees and stipulates that, to the extent permitted by applicable law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by you in the regular course of business) and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. This Section 19 shall not prohibit the Company or any other holder of Notes from contesting any such reproduction to the same extent that it could contest the original, or from introducing evidence to demonstrate the inaccuracy of any such reproduction. 20. CONFIDENTIAL INFORMATION. For the purposes of this Section 20, "CONFIDENTIAL INFORMATION" means information delivered to you by or on behalf of the Company or any Subsidiary in connection with the transactions contemplated by or otherwise pursuant to this Agreement that is proprietary in nature and that was clearly marked or labeled or otherwise adequately identified when received by you as being confidential information of the Company or such Subsidiary, PROVIDED that such term does not include information that (a) was publicly known or otherwise known to you prior to the time of such disclosure, (b) subsequently becomes publicly known through no act or omission by you or any person acting on your behalf, (c) otherwise becomes known to you other than through disclosure by the Company or any Subsidiary or (d) constitutes financial statements delivered to you under Section 7.1 that are otherwise publicly available. You will maintain the confidentiality of such Confidential Information in accordance with procedures adopted by you in good faith to protect confidential information of third parties delivered to you, PROVIDED that you may deliver or disclose Confidential Information to (i) your directors, officers, employees, agents, attorneys and affiliates (to the extent such disclosure reasonably relates to the administration of the investment represented by your Notes), (ii) your financial advisors and other professional advisors who agree to hold confidential the Confidential Information substantially in accordance with the terms of this Section 20, (iii) any other holder of any Note, (iv) any Institutional Investor to which you sell or offer to sell such Note or any part thereof or any participation therein (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20), (v) any Person from which you offer to purchase any security of the Company (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20), (vi) any federal or state regulatory authority having jurisdiction over you, (vii) the National Association of Insurance Commissioners or any similar organization, or any nationally recognized rating agency that requires access to information about your investment portfolio or (viii) any other Person to which such delivery or disclosure may be necessary or appropriate (w) to effect compliance with any law, rule, regulation or order applicable to you, (x) in response to any subpoena or other legal process, (y) in connection with any litigation to which you are a party or (z) if an Event of Default has occurred and is continuing, to the extent you may reasonably determine such delivery and disclosure to be necessary or appropriate in the enforcement or for the protection of the rights and remedies under your Notes and this Agreement. Each holder of a Note, by its acceptance of a Note, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Section 20 as though it were a party to this Agreement. On reasonable request by the Company in connection with the delivery to any holder of a Note of information required to be delivered to such holder under this Agreement or requested by such holder (other than a holder that is a party to this Agreement or its nominee), such holder will enter into an agreement with the Company embodying the provisions of this Section 20. 21. SUBSTITUTION OF PURCHASER. You shall have the right to substitute any one of your Affiliates as the purchaser of the Notes that you have agreed to purchase hereunder, by written notice to the Company, which notice shall be signed by both you and such Affiliate, shall contain such Affiliate's agreement to be bound by this Agreement and shall contain a confirmation by such Affiliate of the accuracy with respect to it of the representations set forth in Section 6. Upon receipt of such notice, wherever the word "you" is used in this Agreement (other than in this Section 21), such word shall be deemed to refer to such Affiliate in lieu of you. In the event that such Affiliate is so substituted as a purchaser hereunder and such Affiliate thereafter transfers to you all of the Notes then held by such Affiliate, upon receipt by the Company of notice of such transfer, wherever the word "you" is used in this Agreement (other than in this Section 21), such word shall no longer be deemed to refer to such Affiliate, but shall refer to you, and you shall have all the rights of an original holder of the Notes under this Agreement. 22. MISCELLANEOUS. 22.1 SUCCESSORS AND ASSIGNS. All covenants and other agreements contained in this Agreement by or on behalf of any of the parties hereto bind and inure to the benefit of their respective successors and assigns (including, without limitation, any subsequent holder of a Note) whether so expressed or not. 22.2 PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement or the Notes to the contrary notwithstanding, any payment of principal of or Make-whole Amount or interest on any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day without including the additional days elapsed in the computation of the interest payable on such next succeeding Business Day. 22.3 SEVERABILITY. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction. 22.4 CONSTRUCTION. Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person. 22.5 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. 22.6 GOVERNING LAW. This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of Minnesota excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State. ***** If you are in agreement with the foregoing, please sign the form of agreement on the accompanying counterpart of this Agreement and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, ANALYSTS INTERNATIONAL CORPORATION By Its The foregoing is hereby agreed to as of the date thereof. GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY By Its and By Its NORTHERN LIFE INSURANCE COMPANY By Its RELIASTAR LIFE INSURANCE COMPANY By Its RELIASTAR UNITED SERVICES LIFE INSURANCE COMPANY By Its SECURITY CONNECTICUT LIFE INSURANCE COMPANY By Its SCHEDULE A ---------- INFORMATION RELATING TO PURCHASERS
Principal Amount of Name and Address of Purchaser Notes to be Purchased - ----------------------------- --------------------- GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY $10,000,000 (1) Payments of Principal and Interest: WIRE INSTRUCTIONS: - ------------------ ABA #091-000-019 NW MPLS/TRUST CLEARING ACCT #08-40-245 GWLA HEALTH ACCOUNT #12468802 Special Instructions: 1) security description (PPN #) 2) allocation of payment between principal and interest, and 3) confirmation of principal balance (2) Notice of such payments: Norwest Bank Minnesota, N.A. 733 Marquette Avenue, Investors Bldg., 5th Floor Minneapolis, Minnesota 55479-0047 Telecopier: (612) 667-3331 Attention: Income Collections (3) All other communications: Great-West Life & Annuity Insurance Company 8515 East Orchard Road 3rd Floor, Tower 2 Englewood, Colorado 80111 Attention: Corporate Finance Investments Telecopier: (303) 689-6193 (4) Tax Identification Number: 84-0467907
A- SCHEDULE A ---------- INFORMATION RELATING TO PURCHASERS
Principal Amount of Name and Address of Purchaser Notes to be Purchased - ----------------------------- --------------------- NORTHERN LIFE INSURANCE COMPANY $3,000,000 (1) All payments by wire transfer of immediately available funds to: US Bank N.A./Mpls. 601 Second Avenue South Acct. #1602-3237-6105 Bank ABA #091000022 ATTN: Securities Accounting Ref: Issuer, Cusip, Coupon & Maturity (2) All notices of payments and written confirmations of such wire transfers: ReliaStar Investment Research, Inc. 100 Washington Avenue South, Suite 800 Minneapolis, MN 55401-2121 ATTN: Private Placements Tel # 612-372-5773 Fax # 612-372-5368 (3) All other communications: ReliaStar Investment Research, Inc. 100 Washington Avenue South, Suite 800 Minneapolis, MN 55401-2121 Attn: Private Placements (4) Tax Identification Number: 41-1295933
A- SCHEDULE A ---------- INFORMATION RELATING TO PURCHASERS
Principal Amount of Name and Address of Purchaser Notes to be Purchased - ----------------------------- ---------------------- RELIASTAR LIFE INSURANCE COMPANY $3,000,000 (1) All payments by wire transfer of immediately available funds to: US Bank N.A./Minneapolis 601 Second Avenue South, Minneapolis, MN Bank ABA #091000022 Acct. Name: ReliaStar Life Insurance Company Acct. #110240014461 ATTN: Securities Accounting Ref: Issuer Name, PPN, Coupon, Maturity and P & I Breakdown (2) All notices of payments and written confirmations of such wire transfers: ReliaStar Investment Research, Inc. 100 Washington Avenue South, Suite 800 Minneapolis, MN 55401-2121 ATTN: Private Placements Tel # 612-372-5773 Fax # 612-372-5368 (3) All other communications: ReliaStar Investment Research, Inc. 100 Washington Avenue South, Suite 800 Minneapolis, MN 55401-2121 Attn: Private Placements (4) Tax Identification Number: 41-0451140
A- SCHEDULE A ---------- INFORMATION RELATING TO PURCHASERS
Principal Amount of Name and Address of Purchaser Notes to be Purchased - ----------------------------- --------------------- RELIASTAR UNITED SERVICES LIFE INSURANCE COMPANY $2,000,000 (1) Register Note in the name of SALKELD & CO. (2) All payments by wire transfer of immediately available funds to: Bankers Trust New York, NY ABA #021001033 A/C #99000739 FBO ReliaStar United Service Life Ins Acct. 92574 Ref: Security Description, PPN # & P & I Breakdown (3) Address for all notices relating to payments: c/o ReliaStar Investment Research, Inc. 100 Washington Avenue South, Suite 800 Minneapolis, MN 55401-2121 ATTN: Private Placements Tel # 612-372-5773 Fax # 612-372-5368 (4) Address for all other communications and notices: c/o ReliaStar Investment Research, Inc. 100 Washington Avenue South, Suite 800 Minneapolis, MN 55401-2121 Attn: Private Placements (5) Tax Identification Number: 53-0159267
A- SCHEDULE A ---------- INFORMATION RELATING TO PURCHASERS
Principal Amount of Name and Address of Purchaser Notes to be Purchased - ----------------------------- --------------------- SECURITY-CONNECTICUT LIFE INSURANCE COMPANY $2,000,000 (1) Register Note in the name of SIGLER & CO. (2) All payments by wire transfer of immediately available funds to: Chase Manhattan Bank New York, NY ABA #021000021 Beneficiary Acct. #544755102 Reference: Sigler & Co. (Nominee Name) Tax I.D. #13-3641527 F/C #G54426 Cusip #, Security Description and P & I Breakdown (3) Correspondence Contact: ReliaStar Investment Research, Inc. 100 Washington Avenue South, Suite 800 Minneapolis, Minnesota 55401-2121 Ref: (Analyst Name) Tel #612-372-5257 Fax #612-372-5368 (4) Tax Identification Number: 35-1468921
A- SCHEDULE B ---------- DEFINED TERMS As used herein, the following terms have the respective meanings set forth below or set forth in the Section hereof following such term: "AFFILIATE" means, at any time, and with respect to any Person, (a) any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person, and (b) any Person beneficially owning or holding, directly or indirectly, 5% or more of any class of voting or equity interests of the Company or any Subsidiary or any corporation of which the Company and its Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly, 5% or more of any class of voting or equity interests. As used in this definition, "CONTROL" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Unless the context otherwise clearly requires, any reference to an "Affiliate" is a reference to an Affiliate of the Company. "BUSINESS DAY" means (a) for the purposes of Section 8.6 only, any day other than a Saturday, a Sunday or a day on which commercial banks in New York City are required or authorized to be closed, and (b) for the purposes of any other provision of this Agreement, any day other than a Saturday, a Sunday or a day on which commercial banks in Minneapolis, Minnesota are required or authorized to be closed. "CAPITAL LEASE" means, at any time, a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP. "CLOSING" is defined in Section 3. "CODE" means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time. "COMPANY" means Analysts International Corporation, a Minnesota corporation. "CONFIDENTIAL INFORMATION" is defined in Section 20. "CONSOLIDATED CURRENT ASSETS" shall mean, as of any date, the consolidated current assets of the Company and its Subsidiaries determined in accordance with GAAP. "CONSOLIDATED CURRENT LIABILITIES" shall mean, as of any date, consolidated current liabilities of the Company and its Subsidiaries (including the current portion of Funded Indebtedness) determined in accordance with GAAP. "CONSOLIDATED FIXED CHARGES" shall mean for any period, consolidated interest expense (including capitalized interest and the interest component of capitalized leases) for the period B-1 plus actual rent payments under operating leases for such period. "CONSOLIDATED FUNDED INDEBTEDNESS" means the aggregate outstanding principal amount of all Funded Indebtedness of the Company and its Subsidiaries determined on a consolidated basis in accordance with GAAP. "CONSOLIDATED NET INCOME" means for any period the net income (or loss) of the Company and its Subsidiaries for such period, as determined on a consolidated basis in accordance with GAAP, after excluding (i) any equity interest of the Company on the unremitted earnings of any corporation not a Subsidiary; (ii) net income or loss of any Subsidiary for any period prior to the date it became a Subsidiary; (iii) net income or loss of any corporation (other than a Subsidiary) merged into or consolidated with the Company or a Subsidiary for any period prior to the date of such merger or consolidation; (iv) any net gain or loss (net of applicable tax effect) realized in the disposition of capital assets other than in the ordinary course of business; (v) extraordinary gains or losses; (vi) any net income resulting from any reappraisal, revaluation or write-up of assets; (vii) proceeds of any property insurance policy; and (viii) reversal of any contingency reserves not created during the period "CONSOLIDATED NET INCOME AVAILABLE FOR FIXED CHARGES" shall mean for any period, the sum of (a) Consolidated Net Income for such period, PLUS (b) provision for any applicable income taxes deducted in computing Consolidated Net Income for such period, PLUS (c) Consolidated Fixed Charges for such period. "CONSOLIDATED NET WORTH" means, at any time, (a) the total assets of the Company and its Subsidiaries which would be shown as assets on a consolidated balance sheet of the Company and its Subsidiaries as of such time prepared in accordance with GAAP, after eliminating all amounts properly attributable to minority interests, if any, in the stock and surplus of Subsidiaries, MINUS (b) the total liabilities of the Company and its which would be shown as liabilities on a consolidated balance sheet of the Company and its Subsidiaries as of such time prepared in accordance with GAAP. "CONSOLIDATED TOTAL ASSETS" means, at any time, the total assets of the Company and its Subsidiaries which would be shown as assets on a consolidated balance sheet of the Company and its Subsidiaries as of such time prepared in accordance with GAAP, after eliminating all amounts properly attributable to minority interests, if any, in the stock and surplus of Subsidiaries. "CONSOLIDATED TOTAL CAPITALIZATION" means the sum of Consolidated Funded Indebtedness, PLUS Consolidated Net Worth. "DEFAULT" means an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default. B- "DEFAULT RATE" means that rate of interest that is the greater of (i) 2% per annum above the rate of interest stated in clause (a) of the first paragraph of the Notes or (ii) 2% over the rate of interest publicly announced by Norwest Bank Minnesota, National Association in Minneapolis, Minnesota as its "base" or "prime" rate. "ENVIRONMENTAL LAWS" means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including but not limited to those related to hazardous substances or wastes, air emissions and discharges to waste or public systems. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect. "ERISA AFFILIATE" means any trade or business (whether or not incorporated) that is treated as a single employer together with the Company under Section 414 of the Code. "EVENT OF DEFAULT" is defined in Section 11. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "FUNDED INDEBTEDNESS" means, for any Person as of the date of determination thereof, (i) Indebtedness of such Person (x) which matures more than one year after the date of determination (including principal payments due within one year of the date of determination on Indebtedness having a final maturity more than one year from the date of determination), or (y) which is directly or indirectly renewable or extendible at the option of the debtor to a date more than one year from the date of determination; and (ii) Guaranties by such Person of Funded Indebtedness of other Persons. "GAAP" means generally accepted accounting principles as in effect from time to time in the United States of America. "GOVERNMENTAL AUTHORITY" means (a) the government of (i) the United States of America or any State or other political subdivision thereof, or (ii) any jurisdiction in which the Company or any Subsidiary conducts all or any part of its business, or which asserts jurisdiction over any properties of the Company or any Subsidiary, or (b) any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, any such government. "GUARANTY" means, with respect to any Person, any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing any indebtedness, dividend or other obligation of any other Person in any manner, whether directly or indirectly, including (without limitation) obligations incurred through an agreement, contingent or otherwise, by such Person: (a) to purchase such indebtedness or obligation or any property constituting security therefor; (b) to advance or supply funds (i) for the purchase or payment of such indebtedness or obligation, or (ii) to maintain any working capital or other balance sheet condition or any income statement condition of any other Person or otherwise to advance or make available funds for the purchase or payment of such indebtedness or obligation; (c) to lease properties or to purchase properties or services primarily for the purpose of assuring the owner of such indebtedness or obligation of the ability of any other Person to make payment of the indebtedness or obligation; or (d) otherwise to assure the owner of such indebtedness or obligation against loss in respect thereof. In any computation of the indebtedness or other liabilities of the obligor under any Guaranty, the indebtedness or other obligations that are the subject of such Guaranty shall be assumed to be direct obligations of such obligor. "HAZARDOUS MATERIAL" means any and all pollutants, toxic or hazardous wastes or any other substances that might pose a hazard to health or safety, the removal of which may be required or the generation, manufacture, refining, production, processing, treatment, storage, handling, transportation, transfer, use, disposal, release, discharge, spillage, seepage, or filtration of which is or shall be restricted, prohibited or penalized by any applicable law (including, without limitation, asbestos, urea formaldehyde foam insulation and polychlorinated biphenyls). "HOLDER" means, with respect to any Note, the Person in whose name such Note is registered in the register maintained by the Company pursuant to Section 13.1. "INDEBTEDNESS" with respect to any Person means, at any time, without duplication, (a) its liabilities for borrowed money and its redemption obligations in respect of mandatorily redeemable Preferred Stock; (b) its liabilities for the deferred purchase price of property acquired by such Person (excluding accounts payable arising in the ordinary course of business but including all liabilities created or arising under any conditional sale or other title retention agreement with respect to any such property); B- (c) all liabilities appearing on its balance sheet in accordance with GAAP in respect of Capital Leases; (d) all liabilities for borrowed money secured by any Lien with respect to any property owned by such Person (whether or not it has assumed or otherwise become liable for such liabilities); (e) all its liabilities in respect of letters of credit or instruments serving a similar function issued or accepted for its account by banks and other financial institutions (whether or not representing obligations for borrowed money); (f) all contingent liabilities arising from the sale of assets with recourse to such Person; (g) Swaps of such Person; and (h) any Guaranty of such Person with respect to liabilities of a type described in any of clauses (a) through (g) hereof. Indebtedness of any Person shall include all obligations of such Person of the character described in clauses (a) through (h) to the extent such Person remains legally liable in respect thereof notwithstanding that any such obligation is deemed to be extinguished under GAAP. "INSTITUTIONAL INVESTOR" means (a) any original purchaser of a Note, (b) any holder of a Note holding more than 10% of the aggregate principal amount of the Notes then outstanding, and (c) any bank, trust company, savings and loan association or other financial institution, any pension plan, any investment company, any insurance company, any broker or dealer, or any other similar financial institution or entity, regardless of legal form. "INVESTMENT" means any investment, made in cash or by delivery of property, made directly or indirectly (i) in any Person, whether by acquisition of shares capital stock, Indebtedness or other obligations or securities, or by loan, advance, capital contribution or otherwise, and all Guaranties of the obligations of any other Person or (ii) in any property. "LIEN" means, with respect to any Person, any mortgage, lien, pledge, charge, security interest or other encumbrance, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or Capital Lease, upon or with respect to any property or asset of such Person (including in the case of stock, stockholder agreements, voting trust agreements and all similar arrangements). "MAKE-WHOLE AMOUNT" is defined in Section 8.6. "MATERIAL" means material in relation to the business, operations, affairs, financial condition, assets, properties, or prospects of the Company and its Subsidiaries taken as a whole. "MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the business, operations, affairs, financial condition, assets or properties of the Company and its Subsidiaries B- taken as a whole, or (b) the ability of the Company to perform its obligations under this Agreement and the Notes, or (c) the validity or enforceability of this Agreement or the Notes. "MEMORANDUM" is defined in Section 5.3. "MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer plan" (as such term is defined in Section 4001(a)(3) of ERISA). "NOTES" is defined in Section 1. "OFFICER'S CERTIFICATE" means a certificate of a Senior Financial Officer or of any other officer of the Company whose responsibilities extend to the subject matter of such certificate. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto. "PERSON" means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof. "PLAN" means an "employee benefit plan" (as defined in Section 3(3) of ERISA) that is or, within the preceding five years, has been established or maintained, or to which contributions are or, within the preceding five years, have been made or required to be made, by the Company or any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate may have any liability. "PREFERRED STOCK" means any class of capital stock of a corporation that is preferred over any other class of capital stock of such corporation as to the payment of dividends or the payment of any amount upon liquidation or dissolution of such corporation. "PROPERTY" or "PROPERTIES" means, unless otherwise specifically limited, real or personal property of any kind, tangible or intangible, choate or inchoate. "QPAM EXEMPTION" means Prohibited Transaction Class Exemption 84-14 issued by the United States Department of Labor. "REQUIRED HOLDERS" means, at any time, the holders of more than 50% in principal amount of the Notes at the time outstanding (exclusive of Notes then owned by the Company or any of its Affiliates). "RESPONSIBLE OFFICER" means any Senior Financial Officer and any other officer of the Company with responsibility for the administration of the relevant portion of this agreement. "SECURITIES ACT" means the Securities Act of 1933, as amended from time to time. "SENIOR FINANCIAL OFFICER" means the chief financial officer, principal accounting officer, treasurer or comptroller of the Company. B- "SUBSIDIARY" means, as to any Person, any corporation, association or other business entity in which such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such entity, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries (unless such partnership can and does ordinarily take major business actions without the prior approval of such Person or one or more of its Subsidiaries). Unless the context otherwise clearly requires, any reference to a "Subsidiary" is a reference to a Subsidiary of the Company. "SWAPS" means, with respect to any Person, payment obligations with respect to interest rate swaps, currency swaps and similar obligations obligating such Person to make payments, whether periodically or upon the happening of a contingency. For the purposes of this Agreement, the amount of the obligation under any Swap shall be the amount determined in respect thereof as of the end of the then most recently ended fiscal quarter of such Person, based on the assumption that such Swap had terminated at the end of such fiscal quarter, and in making such determination, if any agreement relating to such Swap provides for the netting of amounts payable by and to such Person thereunder or if any such agreement provides for the simultaneous payment of amounts by and to such Person, then in each such case, the amount of such obligation shall be the net amount so determined. "VOTING STOCK" means the capital stock of any class or classes of a corporation having power under ordinary circumstances to vote for the election of members by the board of directors of such corporation, or person performing similar functions (irrespective of whether or not at the time stock of any of the class or classes shall have or might have special voting power or rights by reason of the happening of any contingency). "WHOLLY-OWNED SUBSIDIARY" means, at any time, any Subsidiary one hundred percent (100%) of all of the equity interests (except directors' qualifying shares) and voting interests of which are owned by any one or more of the Company and the Company's other Wholly-Owned Subsidiaries at such time. "YEAR 2000 ISSUES" shall mean anticipated costs, problems and uncertainties associated with the inability of certain computer applications to effectively handle data including dates on and after January 1, 2000, as such inability affects the business, operations, and financial condition of the Company and its Subsidiaries and of the Company's and its Subsidiaries' material customers, suppliers and vendors. B- SCHEDULE 5.3 ------------ DISCLOSURE MATERIALS None. Exhibit 1 SCHEDULE 5.4 ------------ SUBSIDIARIES OF THE COMPANY AND OWNERSHIP OF SUBSIDIARY STOCK
Jurisdiction of Entity Organization Ownership - ------ ------------ --------- AiC Analysts Ltd. United Kingdom 100%
AFFILIATES OF THE COMPANY
Name or Entity Ownership - -------------- --------- V.C. Benda 1,178,484 Putnam Investments, Inc. 1,299,489 T. Rowe Price Associates, Inc. 1,261,350
DIRECTORS AND SENIOR OFFICERS OF THE COMPANY
Name Positions Held - ---- -------------- F.W. Lang Chairman, CEO and Director V.C. Benda President, COO and Director Sarah Spiess Executive Vice President Thomas R. Mahler Corporate Secretary and General Counsel Gerald M. McGrath Vice President Finance and Treasurer Willis K. Drake Director Margaret Loftus Director Edward M. Mahoney Director Robb Prince Director
SCHEDULE 5.5 ------------ FINANCIAL STATEMENTS o Analysts International Corporation - June 30, 1998 and 1997 o Analysts International Corporation - June 30, 1997 and 1996 o Analysts International Corporation - June 30, 1996 and 1995 Exhibit 1 SCHEDULE 5.15 ------------- EXISTING INDEBTEDNESS AND LIENS None. EXHIBIT 1 FORM OF NOTE THIS NOTE HAS BEEN PURCHASED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION. NO SALE, OFFER TO SELL, PLEDGE, TRANSFER OR OTHER DISPOSITION OF THIS NOTE SHALL BE MADE UNLESS A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, WITH RESPECT TO THIS NOTE IS THEN IN EFFECT OR UNLESS SUCH DISPOSITION MAY BE EFFECTED WITHOUT VIOLATION OF THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS. ANALYSTS INTERNATIONAL CORPORATION 7.00% SENIOR NOTE DUE DECEMBER 30, 2006 No. [___] [Date] $[_____] PPN 032681 A*9 FOR VALUE RECEIVED, the undersigned, ANALYSTS INTERNATIONAL CORPORATION (herein called the "Company"), a corporation organized and existing under the laws of the State of Minnesota, hereby promises to pay to [______________], or registered assigns, the principal sum of [_________________] DOLLARS on December 30, 2006, with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the rate of 7.00% per annum from the date hereof, payable semiannually, on the 30th day of June and December in each year, commencing with the June or December next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Make-Whole Amount (as defined in the Note Purchase Agreement referred to below), payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 9.00% or (ii) 2% over the rate of interest publicly announced by Norwest Bank Minnesota, National Association from time to time in Minneapolis, Minnesota as its "base" or "prime" rate. Payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at the principal office of the Company or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreement referred to below. This Note is one of a series of Senior Notes (herein called the "Notes") in the aggregate principal amount of $20,000,000 issued pursuant to the Note Purchase Agreement, dated as of December 30, 1998 (as from time to time amended, the "Note Purchase Agreement"), between the Company and the respective Purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality provisions set forth in Section 20 of the Note Purchase Agreement and (ii) to have made the representation set forth in Section 6.2 of the Note Purchase Agreement. This Note is a registered Note and, as provided in the Note Purchase Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary. The Company will make required prepayments of principal on the dates and in the amounts specified in the Note Purchase Agreement. This Note is also subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreement, but not otherwise. If an Event of Default, as defined in the Note Purchase Agreement, occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreement. This Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of Minnesota excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State. ANALYSTS INTERNATIONAL CORPORATION By: Its: Exhibit 1 EXHIBIT 4.4(a) FORM OF OPINION OF SPECIAL COUNSEL TO THE COMPANY Matters To Be Covered In OPINION OF SPECIAL COUNSEL TO THE COMPANY 1. Each of the Company and its Subsidiaries being duly incorporated, validly existing and in good standing and having requisite corporate power and authority to issue and sell the Notes and to execute and deliver the documents. 2. Each of the Company and its Subsidiaries being duly qualified and in good standing as a foreign corporation in appropriate jurisdictions. 3. Due authorization and execution of the documents and such documents being legal, valid, binding and enforceable. 4. No conflicts with usury laws. 5. No conflicts with charter documents, laws or other agreements. 6. All consents required to issue and sell the Notes and to execute and deliver the documents having been obtained. 7. No litigation questioning validity of documents. 8. The Notes not requiring registration under the Securities Act of 1933, as amended; no need to qualify an indenture under the Trust Indenture Act of 1939, as amended. 9. No violation of Regulations G, T or X of the Federal Reserve Board. 10. Company not an "investment company", or a company "controlled" by an "investment company", under the Investment Company Act of 1940, as amended. EX-27 4 EXHIBIT 27
5 1,000 6-MOS JUN-30-1999 JUL-01-1998 DEC-31-1998 33,941 0 86,777 725 0 124,094 34,445 14,124 157,338 39,285 27,394 0 0 2,253 88,286 157,338 311,450 311,450 244,055 244,055 49,476 156 8 18,329 7,242 11,087 0 0 0 11,087 .49 .49
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