<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) APRIL 30, 1997
DATA PROCESSING RESOURCES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 0-27612 95-3931443
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) file number) Identification No.)
4400 MAC ARTHUR BOULEVARD, SUITE 600
NEWPORT BEACH, CA 92660
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 553-1102
NOT APPLICABLE (Former name or former address, if changed since last report.)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
(a) On April 30, 1997, Data Processing Resources Corporation ("DPRC")
acquired by merger, as a wholly owned subsidiary, Computec
International Strategic Resources, Inc., a California corporation
("Computec"). Immediately prior to the merger, all of the outstanding
capital stock of Computec was held by Christopher W. Lancashire, Alicia
R. Lancashire and Merrill Lynch Trust Company of California, a
California corporation, as Trustee of The Lancashire Charitable
Remainder Unitrust (collectively, the "Shareholders").
Under the terms of the merger agreement, the Shareholders
received $28,177,000, consisting of $19,047,000 in cash and 677,880
shares of DPRC common stock, valued at $9,130,000 (computed using a
value of DPRC's common stock of $13,042,000, less an adjustment of
$3,912,000 to reflect the impact of restrictions on disposition of the
stock). In addition, the Shareholders have a right to receive certain
additional consideration contingent upon Computec's adjusted earnings
before interest and taxes through December 31, 1998. The consideration
was based on a multiple of adjusted earnings before interest and taxes
on a 12 month trailing basis. A final determination of such
consideration was arrived at by means of arm's length bargaining among
the parties to the merger agreement. This transaction is to be
accounted for as a purchase.
Under the merger agreement, the Shareholders have certain
registration rights with respect to the 677,880 shares of DPRC common
stock they have received, and any additional shares of DPRC common
stock which they might receive as additional consideration.
At the time of the acquisition, there was no material
relationship between Computec (including its officers, directors and
shareholders) and DPRC or any of its affiliates, or any director or
officer of DPRC, or any associate of any such officer or director.
DPRC used a portion of the proceeds obtained from its second
public offering of securities to pay the cash portion of the purchase
price. No funds were required to be borrowed.
(b) At the time of the merger, Computec was engaged in the information
technology staffing business, which it operated from four facilities:
one in Glendale, California and three international recruiting offices
in London and Southport, England and Sydney, Australia. DPRC presently
intends to continue to engage in the information technology staffing
business in substantially the same manner and for the same purposes.
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
The annual audited financial statements of Computec, prepared
in accordance with Regulation S-X, consisting of the balance
sheets as of December 31, 1995 and 1996 and the statements of
income, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1996 together
with the corresponding Independent Auditors' Report filed with
this report are listed in the Index to Financial Statements on
page F-1 of this report.
(B) PRO FORMA FINANCIAL INFORMATION.
The pro forma financial statements for the consolidated
companies filed with this report are listed in the Index to
the Financial Statements on page F-1 of this report.
(C) EXHIBITS.
The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit No. Document
----------- --------
<S> <C>
2.1 Agreement and Plan of Merger dated April 29, 1997, by
and among Data Processing Resources Corporation, DPRC
Acquisition Corp., Computec International Strategic
Resources, Inc., Christopher W. Lancashire, Alicia R.
Lancashire and Merrill Lynch Trust Company of
California, as Trustee of The Lancashire Charitable
Remainder Unitrust (without exhibits or schedules
attached thereto).
2.2 Registration Rights Agreement dated April 29, 1997,
by and among Data Processing Resources Corporation,
Christopher W. Lancashire and Alicia R. Lancashire.
10.1 Employment Agreement dated April 29, 1997, by and
between DPRC Acquisition Corp. and Christopher W.
Lancashire
99.1 Text of Press Release dated April 30, 1997.
</TABLE>
<PAGE> 4
SIGNATURE
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 hereunto duly authorized.
DATA PROCESSING RESOURCES CORPORATION
Date: May 15, 1997 By: /s/ Michael A. Piraino
---------------- -----------------------------------------------
Michael A. Piraino, Senior Vice President
and Chief Financial Officer (Principal Financial
and Accounting Officer)
<PAGE> 5
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF REGISTRANT (UNAUDITED)
- ---------------------------------------------------------------------
Pro forma Consolidated Balance Sheet as of January 31, 1997 (Unaudited) F-2
Pro forma Consolidated Statements of Income for the Six Months Ended
January 31, 1997 and for the Year Ended July 31, 1996 (Unaudited) F-3 to F-4
Notes to Pro forma Consolidated Financial Statements (Unaudited) F-5 to F-6
HISTORICAL FINANCIAL STATEMENTS OF COMPUTEC INTERNATIONAL STRATEGIC RESOURCES, INC.
- -----------------------------------------------------------------------------------
Independent Auditors' Report F-7
Balance Sheets as of December 31, 1995 and 1996 F-8
Statements of Income for the Years Ended December 31, 1994, 1995 and 1996 F-9
Statements of Shareholders' Equity for the Years Ended December 31, 1994, 1995 and 1996 F-10
Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996 F-11
Notes to Financial Statements F-12 to F-16
</TABLE>
F-1
<PAGE> 6
DATA PROCESSING RESOURCES CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DPRC COMPUTEC
AS OF AS OF
JANUARY 31, DECEMBER 31, PRO FORMA PRO FORMA
1997 1996 ADJUSTMENTS COMBINED
------- ------- ----------- --------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $42,682 $ 470 $ (19,047)(a) $ 24,105
Accounts receivable, net 14,437 2,869 - 17,306
Prepaid taxes - 53 - 53
Other current assets 825 274 - 1,099
------- ------- --------- --------
Total current assets 57,944 3,666 (19,047) 42,563
Property, net 1,199 240 - 1,439
Other assets 63 23 - 86
Intangible assets 31,398 - 26,177(a) 57,575
------- ------- --------- --------
$90,604 $ 3,929 $ 7,130 $101,663
======= ======= ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 5,659 $ 660 $ 820 (a) $ 7,139
Income taxes payable 432 126 - 558
Deferred taxes - 80 - 80
------- ------- --------- --------
Total current liabilities 6,091 866 820 7,777
Long-term deferred taxes - 243 243
Shareholders' equity:
Common stock 80,093 50 (50)(a)
9,130 (a) 89,223
Additional paid-in capital 1,636 - 1,636
Retained earnings 2,784 2,770 (2,770)(a) 2,784
------- ------- --------- --------
Total shareholders' equity 84,513 2,820 6,310 93,643
------- ------- --------- --------
$90,604 $ 3,929 $ 7,130 $101,663
======= ======= ========= ========
</TABLE>
See accompanying Notes to Pro Forma Consolidated Financial Statements
F-2
<PAGE> 7
DATA PROCESSING RESOURCES CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
DPRC COMPUTEC
SIX MONTHS ENDED SIX MONTHS ENDED PRO FORMA PRO FORMA
JANUARY 31, 1997 DECEMBER 31, 1996 ADJUSTMENTS COMBINED
---------------- ----------------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues $43,911 $9,957 $ - $ 53,868
Cost of professional services 33,606 6,203 - 39,809
------- ------ -------- --------
Gross margin 10,305 3,754 - 14,059
Selling, general and administrative expenses 6,518 1,992 524(b) 9,034
------- ------ -------- --------
Operating income 3,787 1,762 (524) 5,025
Interest (expense) income, net 326 - (368)(c) (42)
------- ------ -------- --------
Income before provision for income taxes 4,113 1,762 (892) 4,983
Provision for income taxes 1,604 51 575(d) 2,230
------- ------ -------- --------
Net income $ 2,509 $1,711 $ (1,467) $ 2,753
======= ====== ======== ========
Net income per share $ 0.32 $ 0.32
======= ========
Weighted average common and common
equivalent shares 7,965 678(e) 8,643
======= ======== ========
</TABLE>
See accompanying Notes to Pro Forma Consolidated Financial Statements
F-3
<PAGE> 8
DATA PROCESSING RESOURCES CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
DPRC COMPUTEC
FISCAL YEAR ENDED 12 MONTHS ENDED PRO FORMA PRO FORMA
JULY 31, 1996 JUNE 30, 1996 ADJUSTMENTS COMBINED
------------- ------------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues $ 58,145 $17,322 $ - $ 75,467
Cost of professional services 45,918 10,507 - 56,425
-------- ------- -------- --------
Gross margin 12,227 6,815 - 19,042
Selling, general and administrative expenses 6,719 3,511 1,047(b) 11,277
-------- ------- -------- --------
Operating income 5,508 3,304 (1,047) 7,765
Interest (expense) income, net (162) - (735)(c) (897)
-------- ------- -------- --------
Income before provision for income taxes 5,346 3,304 (1,782) 6,868
Provision for income taxes 2,096 608 462(d) 3,166
-------- ------- -------- --------
Net income $ 3,250 $ 2,696 $ (2,244) $ 3,702
======== ======= ======== ========
Net income per share $ 0.54 $ 0.55
======== ========
Weighted average common and common
equivalent shares 6,039 678(e) 6,717
======== ======== ========
</TABLE>
See accompanying Notes to Pro Forma Consolidated Financial Statements
F-4
<PAGE> 9
DATA PROCESSING RESOURCES CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
On April 30, 1997, Data Processing Resources Corporation ("DPRC")
acquired by merger Computec International Strategic Resources, Inc.
("Computec"). Under the terms of the definitive merger agreement, the
purchase price consisted of $19.6 million in cash and 677,880 shares of
restricted DPRC common stock plus an earnout contingent upon Computec's
earnings before interest and taxes through December 31, 1998. For purposes
of this presentation, the shares of common stock were valued at $9,130,000
after adjustment to reflect securities law restrictions on disposal of the
stock. Under the merger agreement, Computec has certain registration rights
with respect to the 677,880 shares of DPRC common stock it received in the
acquisition.
The unaudited pro forma consolidated balance sheet and statements of
income give effect on a purchase accounting basis to the acquisition of
Computec. The pro forma consolidated balance sheet as of January 31, 1997
has been prepared by combining the consolidated balance sheet of DPRC as of
January 31, 1997 with the balance sheet of Computec as of December 31, 1996.
The pro forma consolidated statement of income for the six months ended
January 31, 1997 has been prepared by combining the consolidated statement
of income of DPRC for the six months ended January 31, 1997 with the
statement of income of Computec for the six months ended December 31, 1996.
The pro forma consolidated statement of income for the fiscal year ended
July 31, 1996 has been prepared by combining the consolidated statement of
income of DPRC for the fiscal year ended July 31, 1996 with the statement of
income of Computec for the twelve months ended June 30, 1996.
The pro forma consolidated balance sheet as of January 31, 1997 assumes
that the acquisition occurred on January 31, 1997. The pro forma
consolidated statements of income for the six months ended January 31, 1997
and for the fiscal year ended July 31, 1996 assume that the acquisition
occurred on August 1, 1995. The pro forma consolidated balance sheet and
statements of income do not purport to represent the results of operations
or financial position of DPRC had the transaction and events assumed therein
occurred on the dates specified, nor are they necessarily indicative of the
results of operations that may be achieved in the future. The pro forma
adjustments are based on management's preliminary assumptions regarding
purchase accounting adjustments. The actual allocation of the purchase price
will be adjusted to the extent that actual amounts differ from management's
estimates in accordance with FAS No. 38, "Accounting for Preacquisition
Contingencies of Purchased Enterprises".
The pro forma consolidated financial information is based upon certain
assumptions and adjustments described in the notes to the pro forma
consolidated financial statements. The pro forma consolidated financial
information should be read in conjunction with (a) the historical
consolidated financial statements, and related notes, of DPRC contained in
DPRC's quarterly report on Form 10-Q for the quarter ended January 31, 1997
and in DPRC's registration statement on Form S-1 (Registration No.
333-18719) originally filed with the Commission under the Securities Act of
1933, as amended, on December 24, 1996, as amended by Amendment No. 1 to
such registration statement filed with the Commission on January 7, 1997 and
(b) Computec's historical financial statements referenced on page F-1 of
this report.
F-5
<PAGE> 10
DATA PROCESSING RESOURCES CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. PRO FORMA ADJUSTMENTS
The following items describe the pro forma adjustments made to reflect
the acquisition by merger of Computec:
a) To record the allocation of the purchase price and other purchase
accounting adjustments as follows:
<TABLE>
<S> <C>
Cash $19,047,000
Common Stock 9,130,000
-----------
Total Purchase Price 28,177,000
Net assets acquired (2,820,000)
Estimated acquisition costs related to Computec 820,000
-----------
Excess of purchase price over net assets acquired $26,177,000
===========
</TABLE>
The excess of purchase price over net assets acquired was allocated to
intangible assets in the consolidated balance sheet.
b) To record amortization related to the intangible assets based on
the straight line method over twenty-five years.
c) To record the reduction in interest income or increase in interest
expense due to the loss of the use of cash used in the acquisition
of Computec.
d) To record the tax effect of the pro forma adjustments and a tax
provision in lieu of tax expense related to the business of
Computec.
e) Represents the issuance of 677,880 shares of common stock in the
acquisition of Computec.
2. PRO FORMA WEIGHTED AVERAGE SHARES OUTSTANDING
Pro forma weighted average shares outstanding assumes as
outstanding the 677,880 new shares issued by DPRC required to consummate the
acquisition of Computec.
F-6
<PAGE> 11
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Computec International Strategic Resources, Inc.:
We have audited the accompanying balance sheets of Computec International
Strategic Resources, Inc. (the Company) as of December 31, 1995 and 1996, and
the related statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Computec International Strategic Resources,
Inc. at December 31, 1995 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
March 14, 1997
(April 29, 1997 as to Note 8)
F-7
<PAGE> 12
COMPUTEC INTERNATIONAL STRATEGIC RESOURCES, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 621,667 $ 470,073
Accounts receivable 1,884,959 2,869,089
Prepaid expenses and other current assets 345,355 326,830
Deferred income taxes (Note 5) 40,281
----------- -----------
Total current assets 2,892,262 3,665,992
PROPERTY:
Buildings and improvements 75,516 103,200
Furniture and fixtures 73,126 59,758
Equipment 143,185 175,976
Leasehold improvements 93,411 14,970
----------- -----------
385,238 353,904
Less accumulated depreciation and amortization (123,966) (113,449)
----------- -----------
Property, net 261,272 240,455
OTHER ASSETS 2,500 23,091
----------- -----------
$ 3,156,034 $ 3,929,538
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities (Note 3) $ 490,890 $ 786,482
Note payable to shareholders 48,453
Deferred income taxes (Note 5) 80,218
----------- -----------
Total current liabilities 539,343 866,700
DEFERRED INCOME TAXES (Note 5) 397,236 243,025
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY (Note 8):
Common stock; 50,000 shares authorized;
50,000 shares issued and outstanding 50,000 50,000
Retained earnings 2,169,455 2,769,813
----------- -----------
Total shareholders' equity 2,219,455 2,819,813
----------- -----------
$ 3,156,034 $ 3,929,538
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE> 13
COMPUTEC INTERNATIONAL STRATEGIC RESOURCES, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
REVENUES $ 7,693,801 $14,240,511 $19,304,747
COST OF PROFESSIONAL SERVICES 4,972,999 8,750,671 11,809,889
----------- ----------- -----------
GROSS MARGIN 2,720,802 5,489,840 7,494,858
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (Note 6) 2,119,580 3,157,896 3,734,601
----------- ----------- -----------
INCOME BEFORE PROVISION FOR
INCOME TAXES 601,222 2,331,944 3,760,257
PROVISION FOR INCOME TAXES (Note 5) 275,895 992,041 102,853
----------- ----------- -----------
NET INCOME $ 325,327 $ 1,339,903 $ 3,657,404
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-9
<PAGE> 14
COMPUTEC INTERNATIONAL STRATEGIC RESOURCES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
------------------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
<S> <C> <C> <C> <C>
BALANCE, January 1, 1994 50,000 $50,000 $ 504,225 $ 554,225
Net income 325,327 325,327
------- ------- ----------- -----------
BALANCE, December 31, 1994 50,000 50,000 829,552 879,552
Net income 1,339,903 1,339,903
------- ------- ----------- -----------
BALANCE, December 31, 1995 50,000 50,000 2,169,455 2,219,455
Net income 3,657,404 3,657,404
Distribution to shareholders (3,057,046) (3,057,046)
------- ------- ----------- -----------
BALANCE, December 31, 1996 50,000 $50,000 $ 2,769,813 $ 2,819,813
======= ======= =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-10
<PAGE> 15
COMPUTEC INTERNATIONAL STRATEGIC RESOURCES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 325,327 $1,339,903 $3,657,404
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 29,698 39,889 50,374
Deferred income taxes 258,405 (184,552) (33,712)
Changes in operating assets and liabilities:
Accounts receivable (357,770) (617,396) (984,130)
Prepaid expenses and other assets (180,135) (159,806) (2,066)
Accounts payable and accrued liabilities 11,732 335,822 295,592
--------- ---------- ----------
Net cash provided by operating activities 87,257 753,860 2,983,462
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchase of property (69,406) (208,430) (245,070)
CASH FLOWS FROM FINANCING ACTIVITIES:
Note payable to shareholders - 48,453 (48,453)
Distribution to shareholders - - (2,841,533)
--------- ---------- ----------
Net cash (used in) provided by financing activities (69,406) 48,453 (2,889,986)
NET INCREASE (DECREASE) IN CASH 17,851 593,883 (151,594)
CASH, beginning of year 9,933 27,784 621,667
--------- ---------- ----------
CASH, end of year $ 27,784 $ 621,667 $ 470,073
========= ========== ==========
SUPPLEMENTAL INFORMATION -
Cash paid for income taxes $ 4,390 $1,093,695 $ 215,602
========= ========== ==========
</TABLE>
NONCASH INFORMATION -
During July 1996, the Company distributed $3,057,046 of cash and certain assets
to the shareholders. The assets were distributed at their net book value of
$215,513 and no gain/loss was recognized upon distribution.
See accompanying notes to financial statements.
F-11
<PAGE> 16
COMPUTEC INTERNATIONAL STRATEGIC RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
- --------------------------------------------------------------------------------
1. GENERAL
Business - Computec (the Company), which was incorporated in the State
of California on January 1, 1988, is a leading specialty staffing
company providing information technology personnel services principally
to major corporations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property - The cost of buildings and improvements, furniture, fixtures
and equipment is depreciated using the straight-line method based on the
estimated useful lives of the related assets, 25 years and generally
three to five years. Leasehold improvements are amortized over the
lesser of five years or the life of the lease.
Revenue Recognition - The Company recognizes revenue as services are
performed.
Income Taxes - The Company provides for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, Accounting
for Income Taxes. SFAS No. 109 is an asset and liability approach that
requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in
the Company's financial statements or tax returns. In estimating future
tax consequences, the Company generally considers all expected future
events other than enactments of changes in the tax laws or rates.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles necessarily requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and related disclosures at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from
these estimates.
3. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following at
December 31:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Accounts payable $185,241 $134,483
Accrued salaries, bonuses and related benefits 83,901 307,798
Other accrued expenses 221,748 344,201
-------- --------
$490,890 $786,482
======== ========
</TABLE>
F-12
<PAGE> 17
COMPUTEC INTERNATIONAL STRATEGIC RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (Continued)
- --------------------------------------------------------------------------------
4. EMPLOYEE BENEFIT PLANS
The Company has a retirement savings plan (the Plan) which qualifies
under Section 401(k) of the Internal Revenue Code (IRC). Eligible
employees may contribute up to 20%, but not to exceed the amount allowed
by the IRC, of their annual compensation, as defined by the Plan.
Company contributions are fully discretionary, and no Company
contributions have been made to the Plan.
5. INCOME TAXES
Prior to 1996, the Company was taxed as a C corporation and was subject
to normal statutory rates. Effective January 1, 1996, the Company
elected to be taxed as an S corporation under the rules of the IRC,
whereby the income and expense items are normally included in the
personal tax returns of the stockholders.
Effective January 1, 1995, the Company changed its method of accounting
for tax purposes from the cash method to the accrual method. As a result
of the change, the Company is required to amortize the net adjustment
related to this change in accounting method into taxable income over six
years. This net adjustment is a built-in gain item and is subject to a
corporate level federal tax of 35%. Accordingly, the Company is subject
to the built-in gains tax in 1996. In addition, the Company will
continue to be subject to built-in gains over the next three years in
connection with the amortization of the cash to accrual adjustment as
long as it remains an S Corporation.
The provision for income taxes in 1996 in the accompanying statements of
income results from the built-in gains tax and California income taxes
at a statutory rate of 1.5%.
The provision for income taxes includes the following at fiscal year
ended December 31:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Current:
Federal $ 9,770 $ 940,026 $ 77,608
State 7,720 236,567 58,957
-------- ---------- --------
17,490 1,176,593 136,565
Deferred:
Federal 199,417 (154,696) 49,693
State 58,988 (29,856) (83,405)
-------- ---------- --------
258,405 (184,552) (33,712)
-------- ---------- --------
Provision for income taxes $275,895 $ 992,041 $102,853
======== ========== ========
</TABLE>
F-13
<PAGE> 18
COMPUTEC INTERNATIONAL STRATEGIC RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (CONTINUED)
- --------------------------------------------------------------------------------
A reconciliation of the Company's effective tax rate compared to the
statutory federal tax rate is as follows at December 31:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Income taxes at statutory federal rate 35.0% 35.0% 35.0%
State taxes, net of federal benefit 7.3 5.6 0.4
Meals and entertainment 4.5 1.2
S corporation income not subject to federal tax (33.1)
Other 1.1 1.7 0.2
Benefit of graduated rates (2.0) (1.0) 0.3
----- ----- -----
45.9% 42.5% 2.8%
===== ===== ====
</TABLE>
The Company provides deferred income taxes for temporary differences between
assets and liabilities recognized for financial reporting and income tax
purposes. As discussed above, the Company changed its tax status to an S
corporation for federal tax purposes. As such, all federal deferred taxes
are the responsibility of the shareholders.
The income effects of these temporary differences representing significant
portions of deferred tax assets and deferred tax liabilities are as
follows at December 31:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
State income taxes $ 113,148 $ -
Accrual to cash adjustment (94,791) (80,933)
Vacation accrual 21,924 715
----------- ----------
Net current deferred tax asset (liability) $ 40,281 $ (80,218)
=========== ==========
Accrual to cash adjustments $ (379,166) $ (242,799)
Depreciation (18,070) (226)
----------- ----------
Net long-term deferred tax liability $ (397,236) $ (243,025)
=========== ==========
</TABLE>
F-14
<PAGE> 19
COMPUTEC INTERNATIONAL STRATEGIC RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (Continued)
- --------------------------------------------------------------------------------
6. COMMITMENTS AND CONTINGENCIES
Operating Leases - The Company leases its office facilities under lease
agreements classified as operating leases. Future minimum lease payments
under such noncancelable operating leases are summarized as follows at
December 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31:
1997 $ 138,548
1998 138,548
1999 138,548
2000 145,143
2001 148,440
Thereafter 185,550
----------
Total future minimum lease payments $ 894,777
==========
</TABLE>
Rent expense amounted to $57,000, $60,600 and $114,900 for the years
ended December 31, 1994, 1995 and 1996, respectively, and has been
included in selling, general and administrative expenses in the
accompanying statements of income.
Revolving Line of Credit - The Company maintains a line of credit
arrangement with a domestic lending institution. Under this agreement,
the Company has a line of $250,000 without the requirement of a
compensating balance. The interest rate varies with the prime rate. The
line is personally guaranteed by the shareholders. As of December 31,
1996, the Company did not have any outstanding balance due on the credit
line.
7. CONCENTRATIONS OF CREDIT RISK
The Company's revenues are generated from credit sales to customers
primarily located in California. The Company performs ongoing credit
evaluations of its customers and maintains reserves for potential credit
lines and generally does not require collateral. The Company maintains
reserves for potential credit losses, and such losses have been within
management's expectations. The Company's ten largest customers
represented 68% of total revenues in fiscal 1996, and as a result, the
Company has a large proportion of its receivables outstanding with these
customers. Accounts receivable to the Company's ten largest customers
was $1,966,000 as of December 31, 1996.
In each of fiscal 1994, 1995 and 1996, the Company had revenues to a
major customer, not necessarily the same customer in each period, of
approximately $922,000, $1,523,000 and $3,593,000, respectively. Given
the significant amount of revenues derived from these customers, the
loss of any such customer or the uncollectability of related receivables
could have a material adverse effect on the Company's financial
condition and results of operations.
F-15
<PAGE> 20
COMPUTEC INTERNATIONAL STRATEGIC RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (CONTINUED)
- --------------------------------------------------------------------------------
8. SUBSEQUENT EVENT
On February 25, 1997, the Board of Directors approved a recapitalization
of the Company, whereby the Company will have Class A and Class B common
shares. The authorized capital stock will consist of 2,000,000 shares of
Class A stock, of which 200,000 shares will be issued and outstanding,
and 3,000,000 shares of Class B stock, of which 300,000 will be issued
and outstanding.
On April 29, 1997, the Company entered into an agreement for the merger
of the Company with DPRC Acquisition Corp. The initial consideration for
the stock is approximately $32,606,000, comprised of $19,563,600 in cash
and $13,042,400 in stock. Additional consideration is contingent and
will be determined based on predetermined formulas on various dates
within the next two years.
F-16
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Document
----------- --------
<S> <C>
2.1 Agreement and Plan of Merger dated April 29, 1997, by
and among Data Processing Resources Corporation, DPRC
Acquisition Corp., Computec International Strategic
Resources, Inc., Christopher W. Lancashire, Alicia R.
Lancashire and Merrill Lynch Trust Company of
California, as Trustee of The Lancashire Charitable
Remainder Unitrust (without exhibits or schedules
attached thereto).
2.2 Registration Rights Agreement dated April 29, 1997,
by and among Data Processing Resources Corporation,
Christopher W. Lancashire and Alicia R. Lancashire.
10.1 Employment Agreement dated April 29, 1997, by and
between DPRC Acquisition Corp. and Christopher W.
Lancashire
99.1 Text of Press Release dated April 30, 1997.
</TABLE>
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
DATA PROCESSING RESOURCES CORPORATION,
DPRC ACQUISITION CORP.,
COMPUTEC INTERNATIONAL STRATEGIC RESOURCES, INC.,
CHRISTOPHER W. LANCASHIRE,
ALICIA R. LANCASHIRE
AND
THE LANCASHIRE CHARITABLE REMAINDER UNITRUST
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE 1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Other Defined Terms . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 2 THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.2 Consummation of the Merger . . . . . . . . . . . . . . . . . 7
2.3 Effect of the Merger . . . . . . . . . . . . . . . . . . . . 7
2.4 Conversion of Computec Stock . . . . . . . . . . . . . . . . 7
ARTICLE 3 MERGER CONSIDERATION . . . . . . . . . . . . . . . . . . . . 8
3.1 Initial Consideration . . . . . . . . . . . . . . . . . . . 8
3.2 Additional Consideration . . . . . . . . . . . . . . . . . . 8
3.3 Fractional Shares . . . . . . . . . . . . . . . . . . . . . 12
3.4 Limitations on Purchase Price . . . . . . . . . . . . . . . 12
3.5 Escrowed Shares . . . . . . . . . . . . . . . . . . . . . . 13
3.6 No Further Rights . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF COMPUTEC . . . . . . . . . 13
4.1 Organization and Qualification of Computec. . . . . . . . . . 13
4.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . 14
4.3 Due Execution and Delivery; Binding Obligations . . . . . . 14
4.4 No Conflict or Violation . . . . . . . . . . . . . . . . . . 14
4.5 Consents and Approvals . . . . . . . . . . . . . . . . . . . 15
4.6 Pending Litigation . . . . . . . . . . . . . . . . . . . . . 15
4.7 Capitalization of Computec . . . . . . . . . . . . . . . . . 15
4.8 Financial Statements . . . . . . . . . . . . . . . . . . . . 15
4.9 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . 16
4.10 Absence of Certain Changes or Events . . . . . . . . . . . . 16
4.11 Properties . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.12 Books and Records . . . . . . . . . . . . . . . . . . . . . 18
4.13 Intellectual Property . . . . . . . . . . . . . . . . . . . 18
4.14 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.15 Receivables . . . . . . . . . . . . . . . . . . . . . . . . 18
4.16 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.17 Employment Matters . . . . . . . . . . . . . . . . . . . . . 20
4.18 Employee Benefits . . . . . . . . . . . . . . . . . . . . . 21
i
<PAGE> 3
Page
----
4.19 Transactions with Affiliated Parties . . . . . . . . . . . . 23
4.20 Certain Payments . . . . . . . . . . . . . . . . . . . . . . 23
4.21 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.22 Compliance with Laws . . . . . . . . . . . . . . . . . . . . 25
4.23 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.24 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.25 Brokers, Finders, etc . . . . . . . . . . . . . . . . . . . 25
4.26 Banking Facilities . . . . . . . . . . . . . . . . . . . . . 26
4.27 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE LANCASHIRES . . . . . . 26
5.1 Authorization . . . . . . . . . . . . . . . . . . . . . . . 26
5.2 Due Execution and Delivery; Binding Obligations . . . . . . 26
5.3 No Conflict or Violation . . . . . . . . . . . . . . . . . . 27
5.4 Consents and Approvals . . . . . . . . . . . . . . . . . . . 27
5.5 Title to Computec Stock . . . . . . . . . . . . . . . . . . 27
5.6 Computec's Representations and Warranties . . . . . . . . . 27
5.7 Securities Law Matters . . . . . . . . . . . . . . . . . . . 27
5.8 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF DPRC . . . . . . . . . . . 28
6.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . 29
6.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . 29
6.3 Due Execution and Delivery; Binding Obligations . . . . . . 29
6.4 No Conflict or Violation . . . . . . . . . . . . . . . . . . 29
6.5 Consents and Approvals . . . . . . . . . . . . . . . . . . . 29
6.6 Valid Issuance of Shareholders' Shares . . . . . . . . . . . 30
6.7 Capital Structure . . . . . . . . . . . . . . . . . . . . . 30
6.8 Organization of Acquisition . . . . . . . . . . . . . . . . 30
6.9 SEC Compliance . . . . . . . . . . . . . . . . . . . . . . . 30
6.10 Brokers, Finders, etc. . . . . . . . . . . . . . . . . . . . 31
6.11 Full Disclosure. . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE 7 THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.2 Deliveries by Computec and the Shareholders . . . . . . . . 31
7.3 Deliveries by DPRC . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE 8 POST CLOSING . . . . . . . . . . . . . . . . . . . . . . . . 32
8.1 Survival of Representations and Warranties . . . . . . . . . 32
ii
<PAGE> 4
Page
----
8.2 Post-Closing Adjustment . . . . . . . . . . . . . . . . . . 33
8.3 Indemnification Obligations . . . . . . . . . . . . . . . . 34
8.4 DPRC's Right of Offset . . . . . . . . . . . . . . . . . . . 37
8.5 Tax-Free Treatment; Charges to Income . . . . . . . . . . . 37
8.6 Board Representation . . . . . . . . . . . . . . . . . . . . 37
8.7 Computec Reorganizations . . . . . . . . . . . . . . . . . . 38
8.8 Stock Options . . . . . . . . . . . . . . . . . . . . . . . 38
8.9 Certain Covenants with Customers . . . . . . . . . . . . . . 38
8.10 Payments by the Surviving Corporation . . . . . . . . . . . 38
8.11 Further Assurances . . . . . . . . . . . . . . . . . . . . . 39
8.12 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE 9 COVENANT NOT TO COMPETE . . . . . . . . . . . . . . . . . . 39
9.1 Non-Compete Covenant . . . . . . . . . . . . . . . . . . . . 39
9.2 Definition of Compete . . . . . . . . . . . . . . . . . . . 39
9.3 Direct or Indirect Competition . . . . . . . . . . . . . . . 39
9.4 Confidential Data . . . . . . . . . . . . . . . . . . . . . 40
9.5 Reasonableness of Restrictions. . . . . . . . . . . . . . . 40
9.6 Injunctive Relief . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE 10 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE 11 MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . 45
11.1 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . 45
11.2 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 45
11.3 Dispute Resolution . . . . . . . . . . . . . . . . . . . . . 45
11.4 Interpretation . . . . . . . . . . . . . . . . . . . . . . . 47
11.5 Waiver and Amendment . . . . . . . . . . . . . . . . . . . . 47
11.6 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.7 Successors and Assigns . . . . . . . . . . . . . . . . . . . 48
11.8 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . 49
11.10 Specific Performance . . . . . . . . . . . . . . . . . . . . 49
11.11 Cumulative Remedies . . . . . . . . . . . . . . . . . . . . 49
11.12 Warranty of Authority . . . . . . . . . . . . . . . . . . . 49
11.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 49
iii
<PAGE> 5
LIST OF EXHIBITS
A Computec Adjusted EBIT for the 1996 Calendar Year
B Computec Adjusted Net Worth at the Balance Sheet Date and
March 31, 1997
C Computec Adjusted Working Capital at the Balance Sheet Date and
March 31, 1997
D Form of Agreement of Merger and Certificates of Approval
E Form of Escrow Agreement
F Form of C. Lancashire Employment Agreement
G Form of Executive Employment Agreements
H Form of Registration Rights Agreement
LIST OF SCHEDULES
1.1(a) Computec Tax and Other Liabilities
1.1(b) Third Party Payments
4.1 Articles and Bylaws of Computec
4.5 Computec's Consents and Approvals
4.6 Computec's Litigation
4.7 Capitalization of Computec
4.8 Financial Statements
4.9 Undisclosed Liabilities
4.10 Absence of Certain Changes or Events
4.11 Properties
4.13 Intellectual Property
4.14 Leases
4.15 Receivables
4.16 Contracts and Major Customers
4.17 Employment Matters
4.18 Employee Benefit Plans
4.19 Transactions With Affiliated Parties
4.23 Permits
4.24 Insurance
4.26 Banking Facilities
6.1 Acquisition's Articles and Bylaws
6.5 DPRC's and Acquisition's Consents and Approvals
8.8 List of Optionees and Options
iv
<PAGE> 6
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and
entered into as of this 29th day of April 1997, by and among Data Processing
Resources Corporation, a California corporation ("DPRC"), DPRC Acquisition
Corp., a California corporation and a wholly-owned subsidiary of DPRC
("Acquisition"), Computec International Strategic Resources, Inc., a California
corporation ("Computec"), Christopher W. Lancashire, an individual ("C.
Lancashire"), Alicia R. Lancashire, an individual ("A. Lancashire"), and
Merrill Lynch Trust Company of California, a California corporation, as Trustee
of The Lancashire Charitable Remainder Unitrust (the "Trustee"). C. Lancashire
and A. Lancashire are collectively referred to herein as the "Lancashires."
The Lancashires and the Trustee are collectively referred to herein as the
"Shareholders" and sometimes individually referred to as a "Shareholder."
R E C I T A L S
A. Computec provides temporary technical personnel to third
parties (the "Business"), with offices situated at (a) 801 North Brand
Boulevard, Suite 650, Glendale, California 91203; (b) 331 Andover Park East,
Tukwila, Washington 98188; (c) 70A Sandon Road, Hillside, Southport PR8 4QD,
England; (d) "Trac House," 34 Francis Grove, Wimbledon, London, SW19 4DY,
England; and (e) Level 4, 140 Sussex Street, Sydney, New South Wales 2000,
Australia.
B. The Shareholders collectively own all of the issued and
outstanding shares of the capital stock of Computec.
C. The parties wish to provide for the merger of Computec with
and into Acquisition on the terms and subject to the conditions of this
Agreement.
A G R E E M E N T
In consideration of the foregoing recitals and the respective
covenants, agreements, representations and warranties contained herein, the
parties, intending to be legally bound, agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Defined Terms. For purposes of this Agreement, the following
terms shall have the following meanings:
"Action" shall mean any action, claim, suit, litigation,
proceeding, arbitration, mediation or other dispute.
"Balance Sheet" shall mean the audited consolidated balance
sheet of Computec at December 31, 1996, together with the related notes thereto
and the auditors' report thereon.
<PAGE> 7
"Balance Sheet Date" shall mean December 31, 1996.
"Books and Records" shall mean all books, ledgers, files,
records, manuals and other materials (in any form or medium) related to the
Business, including, but not limited to, all correspondence, personnel records,
data base of current, former and prospective technical contractors, purchasing
materials and records, vendor lists, operation and quality control records and
procedures, research and development files, Intellectual Property disclosures
and documentation, accounting records and systems, litigation files, sales
order files, purchase order files, advertising materials, catalogs, product
brochures, mailing lists, customer lists, distribution lists, sales and
promotional materials and all other records utilized by Computec in connection
with the Business and all computer hardware, software and data files necessary
to access or review or continue to compile or utilize any of the foregoing.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Computec Adjusted EBIT" shall mean the earnings of Computec
for the relevant accounting period, before deductions for interest and taxes,
as determined in accordance with generally accepted accounting principles, and
as included in the audited stand alone financial statements of Computec, plus
or minus the type of adjustments set forth on Exhibit A hereto. Computec
Adjusted EBIT for the 1996 calendar year, including all anticipated adjustments
thereto, is shown on Exhibit A attached hereto. Computec Adjusted EBIT for the
relevant accounting period shall be determined in the same manner used by the
parties to determine Computec Adjusted EBIT for the 1996 calendar year;
provided, however, that for purposes of determining Computec Adjusted EBIT for
the 1997 calendar year, (i) a $35,000 credit shall be made for commissions
earned in the 1996 calendar year and which will not be paid in the 1997 or any
subsequent calendar year, (ii) a credit shall be made in the amount of all
legal and accounting expenses incurred by Computec during the 1997 calendar
year which relate to the negotiation and execution of this Agreement provided
that the Lancashires reimburse Computec for all such expenses pursuant to
Section 8.10, below; (iii) a credit shall be made in the amount of all filing
and professional fees (not to exceed $12,000) incurred by Computec during the
1997 calendar year which relate to amended or new petitions with respect to
H1-B filings necessitated as a result of the Merger; and (iv) a credit shall be
made in the amount of all Third Party Payments.
"Computec Adjusted Net Worth" shall mean the difference
between (a) all of the assets of Computec, and (b) all of the liabilities of
Computec other than Computec Tax and Other Liabilities, as determined in
accordance with generally accepted accounting principles. Computec Adjusted Net
Worth at the Balance Sheet Date is shown on Exhibit B attached hereto.
Computec Adjusted Net Worth at the Effective Time shall be determined in the
same manner used by the parties to determine Computec Adjusted Net Worth at the
Balance Sheet Date.
"Computec Adjusted Working Capital" shall mean the difference
between (a) all of the current assets of Computec, and (b) all of the current
liabilities of Computec other than the current portion of Computec Tax and
Other Liabilities, as determined in accordance with
2
<PAGE> 8
generally accepted accounting principles. Computec Adjusted Working Capital at
the Balance Sheet Date is shown on Exhibit C attached hereto. Computec
Adjusted Working Capital at the Effective Time shall be determined in the same
manner used by the parties to determine Computec Adjusted Working Capital at
the Balance Sheet Date.
"Computec Tax and Other Liabilities" shall mean all long and
short term bank, working capital line, institutional, shareholder-related and
other interest bearing debt, accrued interest and income tax liabilities of
Computec, whether current or deferred, including, without limitation, those set
forth on Schedule 1.1(a) hereto.
"Contracts" shall mean all of the contracts, licenses, Leases,
arrangements, understandings or other agreements related in any way to the
Business, including, without limitation, all of the Contracts described on
Schedules 4.13, 4.14 and 4.16 hereto.
"Damages" shall mean any claim, demand, loss, liability,
damage or expense, including without limitation interest, penalties and
reasonable attorneys', accountants' and experts' fees and costs of
investigation incurred as a result thereof.
"DPRC Average Closing Price" shall mean, (a) with respect to
the Initial DPRC Shares, the average closing price of the DPRC Common Shares,
as publicly reported by the Nasdaq Stock Market as of 4:00 p.m. Eastern Time,
over the last 20 trading days ending on (and including) the trading day
immediately prior to the Closing Date, and (b) with respect to the Additional
DPRC Shares, the average closing price of the DPRC Common Shares, as publicly
reported by the Nasdaq Stock Market as of 4:00 p.m. Eastern Time, over the last
20 trading days ending on (and including) the trading day immediately prior to
the applicable Additional Consideration Payment Date.
"DPRC Common Shares" shall mean the common stock, no par
value, of DPRC.
"Employee Benefit Plan(s)" shall mean: (a) Any "employee
welfare benefit plan," as defined in Section 3(1) of ERISA, (i) which Computec
sponsors or to which Computec contributes or is required to contribute, or
under which Computec may incur any liability, and (ii) which covers an employee
or former employee of Computec including each multi-employer welfare benefit
plan; (b) any "multi-employer plan," as defined in Section 4001(a)(3) of ERISA,
(i) to which Computec (or any person which is a member of a "controlled group
of corporations" with or under "common control" with Computec as defined in
Section 414(b) or (c) of the Code ("Common Control Entity")) has contributed or
been obligated to contribute at any time or under which Computec may incur any
liability, and (ii) which covers an employee or former employee of Computec;
(c) any "employee pension benefit plan," as defined in Section 3(2) of ERISA,
(i) which Computec sponsors or to which Computec or any Common Control Entity
contributes or is required to contribute or under which Computec may incur any
liability, and (ii) which covers an employee or former employee of Computec;
and (d) any deferred compensation plan,
3
<PAGE> 9
bonus plan, profit sharing plan, stock option plan, employee stock purchase
plan and any other employee benefit plan, agreement, arrangement or commitment
maintained by Computec which covers an employee or former employee of Computec.
"Encumbrances" shall mean any claim, lien, pledge, option,
charge, easement, security interest, deed of trust, mortgage, right-of-way,
encroachment, restriction, encumbrance or other right of third parties, of any
kind or nature.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time, and any successor statute, including the
rules and regulations promulgated thereunder.
"Intellectual Property" shall mean all of Computec's
intellectual property rights including, without limitation, all of Computec's
(a) common law, state, federal and statutory rights in any trademarks,
trademark registrations and applications, service marks and trade names,
copyrights, copyright registrations; patents, patent applications, design
rights, inventions, trade secrets, technical and business confidential
information (including, but not limited to designs, plans, specifications,
formulas, processes, methods, shop rights, know-how and other business or
technical confidential information in each case whether or not such rights are
patentable, copyrightable or registerable); (b) computer software programs and
systems, know-how, formulae and designs and documentation relating to the
foregoing or used or useable in the Business; and (c) other proprietary
information owned, controlled, created or used or useable by or on behalf of
Computec in connection with the conduct of the Business in which Computec has
any interest whatsoever, whether or not registered, including rights or
obligations under any license agreement with any other person.
"Laws" shall mean all foreign, federal, state or local
statutes, regulations, ordinances, orders, decrees, or any other laws, common
law theories or reported decisions of any foreign, federal or state court
including, without limitation, now or at any time hereafter in effect.
"Leases" shall mean all leases, subleases, licenses and other
occupancy or lease agreements, together with all amendments, supplements and
nondisturbance agreements pertaining thereto, under which Computec leases,
subleases, licenses, occupies or uses any real or personal property.
"Permits" shall mean all franchises, permits, licenses,
qualifications, rights-of-way, easements, municipal and other approvals,
authorizations, orders, consents and other rights from, and filings with, any
governmental authority of any jurisdiction worldwide relating to the conduct of
the Business.
"Representatives" shall mean any officer, director, principal,
shareholder, partner, attorney, accountant, advisor, agent, trustee, employee
or other representative of a party.
4
<PAGE> 10
"Subsidiary" shall mean any corporation, partnership, limited
liability company or partnership, joint venture or other entity in which a
party either owns capital stock or is a partner or is in some other manner
directly or indirectly affiliated through a direct or indirect investment or
participation in the equity of such entity and "Subsidiaries" shall mean all
such entities in which a party has any interest.
"Third Party Payments" shall mean the liabilities, obligations
and commitments of Computec to the persons and in the amounts set forth on
Schedule 1.1(b) hereto.
1.2 Other Defined Terms. The following capitalized terms shall
have the meanings given to them in the Sections set forth below:
Term Section
---- -------
AAA 11.3(c)
A. Lancashire Introduction
Accountant 3.2(b)
Acquisition Introduction
Acquisition Shares 6.7(b)
Additional Cash Consideration 3.2(d)
Additional Consideration 3.2
Additional Consideration Payment Date 3.2
Additional DPRC Shares 3.2(c)
Affiliated Party(ies) 4.19
Agreement Introduction
Ancillary Agreements 4.2
Board 8.5
Business Recital A
C. Lancashire Introduction
C. Lancashire Employment Agreement 7.2(d)
California Law 2.1
Carryover Minimum Threshold Adjustment 3.2(a)(iii)
Class A Additional Consideration 3.2(c)
Class A Initial Consideration 3.1(a)
Class B Additional Consideration 3.2(c)
Class B Initial Consideration 3.1(b)
Class A Stock 2.4(a)
Class B Stock 2.4(b)
Closing 7.1
Closing Date 7.1
Computec Introduction
Computec Stock 2.4
Computec Taxes 4.21(a)
Decision 11.3(c)(i)
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DPRC Introduction
DPRC Options 6.7(a)
DPRC Preferred Shares 6.7(a)
DPRC Representatives 8.3(a)
DPRC's Auditor 3.2(b)
Effective Time 2.2
Escrow Agent 3.5
Escrow Agreement 3.5
Escrowed Shares 3.5
Executive Employment Agreements 7.2(e)
Financial Statements 4.8
Indemnitee 8.3(c)
Indemnitor 8.3(c)
Initial Cash Consideration 3.1(b)
Initial DPRC Shares 3.1(a)
Interim Period 10.1
Lancashires Introduction
Major Customers 4.16(b)
Merger 2.1
Merger Documents 2.2
Minimum Threshold Adjustment 3.2(a)(ii)
Non-Compete Period 9.1
Outstanding Class A Stock 2.4(a)
Outstanding Class B Stock 2.4(b)
Pre-Effective Periods 10.1
Receivables 4.15
Remaining Carryover Minimum
Threshold Adjustment 3.2(a)(iv)
Restrictive Covenant 8.9
Registration Rights Agreement 7.2(f)
Shareholder(s) Introduction
Shareholder Representatives 8.3(b)
Shareholder's Auditor 3.2(b)
Shareholders' Shares 5.7
Survival Date 8.1
Surviving Corporation 2.3
Tax Returns 4.21(c)
Territory 9.1
Transfer 8.6
Trustee Introduction
Unbilled Receivables 4.15
Warranty Claims 8.3(e)
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ARTICLE 2
THE MERGER
2.1 The Merger. On the terms and subject to the conditions of
this Agreement, at the Effective Time, in accordance with the General
Corporation Law of the State of California (the "California Law"), Computec
shall be merged with and into Acquisition (the "Merger"), and the separate
existence of Computec shall cease and Acquisition shall continue as the
surviving corporation under the Laws of the State of California under the name
"Computec International Strategic Resources, Inc."
2.2 Consummation of the Merger. At the Closing, the parties shall
cause the Merger to be consummated by delivering to the California Secretary of
State an agreement of merger, together with certificates of approval, in the
forms attached as Exhibit D hereto, with such modifications as may be required
by, and executed and acknowledged in accordance with, the relevant provisions
of the California Law (such documents being referred to collectively as the
"Merger Documents"), and the parties shall make all other filings and
recordings required by the California Law in connection with the Merger. The
Merger shall become effective at the time of filing of the appropriate Merger
Documents with the California Secretary of State, or at such later time, which
shall be as soon after the Closing as reasonably practicable, specified as the
effective time in the Merger Documents (the "Effective Time").
2.3 Effect of the Merger. At the Effective Time, (a) the separate
existence of Computec shall cease and Computec shall be merged with and into
Acquisition (Acquisition after the Merger is sometimes referred to herein as
the "Surviving Corporation"), (b) the Articles of Incorporation of Acquisition,
a copy of which is attached as Schedule 6.1 hereto, shall be the Articles of
Incorporation of the Surviving Corporation until duly amended, except that at
the Effective Time Article I of the Articles of Incorporation of the Surviving
Corporation shall be amended to read as follows: "The name of the corporation
is Computec International Strategic Resources, Inc.," (c) the Bylaws of
Acquisition, a copy of which is attached as Schedule 6.1 hereto, shall be the
Bylaws of the Surviving Corporation until duly amended, (d) the directors of
Acquisition shall be the directors of the Surviving Corporation, (e) the
officers of Acquisition shall be the officers of the Surviving Corporation, (f)
the issued and outstanding capital shares of Acquisition shall continue to be
the issued and outstanding capital shares of the Surviving Corporation, and (g)
the Merger shall have the effects set forth in Section 1107 of the California
Law.
2.4 Conversion of Computec Stock. On the terms and subject to the
conditions of this Agreement, at the Effective Time, by virtue of the Merger,
and without any further action on the part of Computec or the Shareholders, (a)
each share of Computec's Class A Common Stock, no par value (the "Class A
Stock"), issued and outstanding immediately prior to the Effective Time (the
"Outstanding Class A Stock") shall be canceled and extinguished and be
converted into the right to receive the Class A Initial Consideration and the
Class A Additional Consideration, and (b) each share of Computec's Class B
Common Stock, no par value (the "Class B Stock"), issued and outstanding
immediately prior to the Effective Time (the
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<PAGE> 13
"Outstanding Class B Stock") shall be canceled and extinguished and be
converted into the right to receive the Class B Initial Consideration and the
Class B Additional Consideration, each in accordance with the procedures set
forth in Sections 3.1 and 3.2, below. The Outstanding Class A Stock and the
Outstanding Class B Stock are sometimes collectively referred to herein as the
"Computec Stock."
ARTICLE 3
MERGER CONSIDERATION
3.1 Initial Consideration. Subject to Section 3.5, below, as soon
as possible after DPRC receives written certification from the California
Secretary of State of the filing of the Merger Documents with the California
Secretary of State, but in no event later than the next business day
thereafter, DPRC shall cause the following consideration to be delivered to the
Shareholders:
(a) Class A Initial Consideration. The initial
consideration to be received with respect to each share of Class A Outstanding
Stock pursuant to Section 2.4(a), above (the "Class A Initial Consideration"),
shall be an amount of DPRC Common Shares equal to the quotient obtained by
dividing the number of the Initial DPRC Shares by the number of shares of the
Outstanding Class A Stock. As used herein, the "Initial DPRC Shares" shall
mean that number of DPRC Common Shares which when multiplied by the DPRC
Average Closing Price, equals Thirteen Million Forty-Two Thousand Four Hundred
and No/100 Dollars ($13,042,400.00).
(b) Class B Initial Consideration. The initial
consideration to be received with respect to each share of Class B Outstanding
Stock pursuant to Section 2.4(b), above (the "Class B Initial Consideration"),
shall be an amount in cash equal to the quotient obtained by dividing the
amount of the Initial Cash Consideration by the number of shares of the
Outstanding Class B Stock. As used herein, the "Initial Cash Consideration"
shall mean the sum of (a) Nineteen Million Five Hundred Sixty-Three Thousand
Six Hundred and No/100 Dollars ($19,563,600.00), less the amount of Computec
Tax and Other Liabilities at the Effective Time, and (b) simple interest
accruing on the amount determined under the foregoing clause (a) at the rate of
5.5% per annum from the Effective Time through the date such payment is
actually made by DPRC to the Shareholders.
3.2 Additional Consideration. On the terms and subject to the
conditions of this Section 3.2, within 10 business days after each of August
15, 1997, March 31, 1998, August 15, 1998 and March 31, 1999 (each, an
"Additional Consideration Payment Date"), subject to Sections 3.5 and 8.4,
below, DPRC shall pay or cause to be paid to the Shareholders additional
consideration (the "Additional Consideration"), determined as follows:
(a) Amount of Additional Consideration. The amount of
the Additional Consideration payable by DPRC to the Shareholders on an
Additional Consideration Payment Date shall be determined as follows:
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<PAGE> 14
(i) With respect to the August 15, 1997
Additional Consideration Payment Date, DPRC shall pay the Shareholders an
amount equal to the product obtained by multiplying 7.00 by the amount by which
Computec Adjusted EBIT for the first six months of the 1997 calendar year
exceeds $1.918 million. For example, if Computec Adjusted EBIT for the first
six months of the 1997 calendar year is $2.118, then the Additional
Consideration for the August 15, 1997 Additional Consideration Payment Date
shall be $1.4 million (i.e., [$2.118 million - $1.918 million] x 7.00 = $1.4
million).
(ii) With respect to the March 31, 1998
Additional Consideration Payment Date, DPRC shall pay the Shareholders an
amount equal to the difference between (A) the product obtained by multiplying
7.00 by the amount by which Computec Adjusted EBIT for the 1997 calendar year
exceeds $3.836 million, and (B) the amount of Additional Consideration paid to
the Shareholders pursuant to subparagraph (i), above; provided, however, that
if Computec Adjusted EBIT for the 1997 calendar year is less than $4.9 million,
then the amount of the Additional Consideration that would otherwise be payable
by DPRC to the Shareholders hereunder shall be reduced (but not below zero) by
an amount equal to the product obtained by multiplying 7.00 by the amount by
which Computec Adjusted EBIT for 1997 calendar year is less than $4.9 million
(the "Minimum Threshold Adjustment"). For example, if Computec Adjusted EBIT
for the 1997 calendar year is $4.4 million and the amount of the Additional
Consideration paid to the Shareholders pursuant to subparagraph (i), above, is
as set forth in the example in subparagraph (i), above, then the Additional
Consideration for the March 31, 1998 Additional Consideration Payment Date
shall be $0 million (i.e., [$4.4 million - $3.836 million] x 7.00 - $1.4
million - $3.5 million = -$.952 million).
(iii) With respect to the August 15, 1998
Additional Consideration Payment Date, DPRC shall pay the Shareholders an
amount equal to the product obtained by multiplying 7.00 by the amount, if any,
by which Computec Adjusted EBIT for first six months of the 1998 calendar year
exceeds (A) Computec Adjusted EBIT for the first six months of the 1997
calendar year, or (2) $1.918 million, whichever is greater; provided, however,
that if Computec Adjusted EBIT for the 1997 calendar year was less than $4.9
million and the amount of the Minimum Threshold Adjustment exceeded the amount
of the Additional Consideration that would have otherwise been payable by DPRC
to the Shareholders pursuant to subparagraph (ii), above (the "Carryover
Minimum Threshold Adjustment"), then the amount of the Additional Consideration
that would otherwise be payable by DPRC to the Shareholders hereunder shall be
reduced (but not below zero) by the amount of the Carryover Minimum Threshold
Adjustment. For example, if Computec Adjusted EBIT for the 1997 calendar year
is $4.4 million and Computec Adjusted EBIT for the first six months of the 1998
calendar year is $3.2 million, then the Additional Consideration for the August
15, 1998 Additional Consideration Payment Date shall be $6.622 million (i.e.,
[$3.2 million - $2.118 million] x 7.00 - $.952 million = $6.622 million).
(iv) With respect to the March 31, 1999
Additional Consideration Payment Date, DPRC shall pay the Shareholders an
amount equal to the difference between (A) the product obtained by multiplying
7.00 by (1) the amount by which Computec Adjusted EBIT
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<PAGE> 15
for the 1998 calendar year exceeds Computec Adjusted EBIT for the 1997 calendar
year, or (2) $3.836 million, whichever is greater, and (B) the amount of
Additional Consideration determined pursuant to subparagraph (iii), above,
before adjustment, if any, for the Minimum Threshold Adjustment; provided,
however, that if Computec Adjusted EBIT for the 1997 calendar year was less
than $4.9 million and the amount of the Minimum Threshold Adjustment exceeded
the amount of the Additional Consideration that would have otherwise been
payable by DPRC to the Shareholders pursuant to subparagraphs (ii) and (iii),
above (the "Remaining Carryover Minimum Threshold Adjustment"), then the amount
of the Additional Consideration that would otherwise be payable by DPRC to the
Shareholders hereunder shall be reduced (but not below zero) by the amount of
the Remaining Carryover Minimum Threshold Adjustment. For example, if Computec
Adjusted EBIT for the 1998 calendar year is $8.0 million, the amount of the
Additional Consideration paid to the Shareholders pursuant to subparagraph
(iii), above, is as set forth in the example in subparagraph (iii), above, then
the Additional Consideration on the March 31, 1999 Additional Consideration
Payment Date shall be $17.626 million (i.e., [$8.0 million - $4.4 million] x
7.00 - $6.622 million - $.952 million - [0] = $17.626 million).
(v) Notwithstanding anything in subparagraphs
(i) through (iv), above, or any of the examples set forth therein, DPRC shall
have no liability, obligations or commitment to pay any Additional
Consideration to the Shareholders unless and until the amount of all Additional
Consideration earned hereunder is One Million Five Hundred Thousand and No/100
Dollars ($1,500,000.00), in which case, DPRC shall only be required to pay to
the Shareholders that portion of the Additional Consideration, if any, in
excess of One Million Five Hundred Thousand and No/100 Dollars ($1,500,000.00).
(b) Calculation of Computec Adjusted EBIT. As soon as
practicable after June 30, 1997, December 31, 1997, June 30, 1998 and December
31, 1998, DPRC shall cause its auditor ("DPRC's Auditor") to compute the amount
of Computec Adjusted EBIT for the relevant accounting period, as set forth in
subparagraphs (i), (ii), (iii) and (iv), above, and DPRC shall provide to the
Shareholders and their auditor (the "Shareholder's Auditor") for their review
and approval, DPRC's Auditor's computations and working papers reflecting how
such computations were made. If the Shareholders or Shareholder's Auditor have
any objections to the computation of Computec Adjusted EBIT for any relevant
accounting period, they will deliver detailed statements describing their
objections to DPRC within 30 days after receiving DPRC Auditor's computations
and working papers reflecting how such computations were made. The parties
will use their reasonable efforts to resolve any such objections. If, however,
the parties do not obtain final resolution of this matter within 30 days after
DPRC has received the statements of objections, the dispute shall be referred
to Price Waterhouse LLP (the "Accountant") within 15 days following such 30-day
period. The Accountant's determination of the amount of Computec Adjusted EBIT
for the relevant accounting period shall be rendered by the Accountant in a
writing setting forth in reasonable specificity the reasons for each conclusion
reached in its decision. The Accountant's determination shall be binding upon
all parties. However, in the event that the decision of the Accountant is
clearly erroneous, as determined in accordance with applicable procedures set
forth in Section 11.3, below, then the decision of the Accountant may be
vacated or corrected in the same manner as provided for in
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California Code of Civil Procedure Sections 1286.2 or 1286.6 for any such
error. DPRC and the Shareholders shall use their best efforts, and shall cause
DPRC's Auditor and Shareholder's Auditor, respectively, to aid the Accountant
in reaching a decision within 30 days from the date the dispute is tendered to
the Accountant. DPRC and the Shareholders will share responsibility for the
fees and expenses of the Accountant based on the degree to which the Accountant
accepts the respective positions of the parties, as conclusively determined by
the Accountant.
(c) Class A Additional Consideration. The additional
consideration to be received with respect to each share of Class A Outstanding
Stock pursuant to Section 2.4(a), above, on an Additional Consideration Payment
Date (the "Class A Additional Consideration") shall be an amount of DPRC Common
Shares equal to the quotient obtained by dividing the number of the Additional
DPRC Shares by the number of shares of the Outstanding Class A Stock. As used
herein, the "Additional DPRC Shares" shall mean that number of DPRC Common
Shares which when multiplied by the DPRC Average Closing Price, equals forty
percent (40%) of the Additional Consideration that is payable by DPRC to the
Shareholders for such Additional Consideration Payment Date, as determined in
accordance with Section 3.2(a)(i), (ii), (iii) or (iv), above, as the case may
be.
(d) Class B Additional Consideration. The additional
consideration to be received with respect to each share of Class B Outstanding
Stock pursuant to Section 2.4(b), above, on an Additional Consideration Payment
Date (the "Class B Additional Consideration") shall be an amount in cash equal
to the quotient obtained by dividing the amount of the Additional Cash
Consideration for such Additional Consideration Payment Date by the number of
shares of the Outstanding Class B Stock. As used herein, the "Additional Cash
Consideration" shall mean an amount in cash equal to sixty percent (60%) of the
Additional Consideration that is payable by DPRC to the Shareholders for such
Additional Consideration Payment Date, as determined in accordance with Section
3.2(a)(i), (ii), (iii) or (iv), above, as the case may be.
(e) Payment of Additional Consideration. Each payment of
the Class A Additional Consideration, as and when payable by DPRC to each
holder of the Outstanding Class A Stock, shall be paid by DPRC to each holder
of the Outstanding Class A Stock, which amount shall be payable by DPRC's
delivery to each holder of the Outstanding Class A Stock of a stock certificate
of DPRC, certifying that such holder is the record holder of the applicable
number of Additional DPRC Shares. Each payment of the Class B Additional
Consideration, as and when payable by DPRC to each holder of the Outstanding
Class B Stock, shall be paid by DPRC to each holder of the Outstanding Class B
Stock, which amount shall be payable by DPRC's delivery to each holder of the
Outstanding Class B Stock of a check, made payable to such holder of the
Outstanding Class B Stock, or cash by wire transfer to such holder's account.
(f) Maximization of Additional Consideration. DPRC
hereby acknowledges C. Lancashire's need to retain flexibility in making
operational and financial decisions regarding the conduct of the Business
during the 1997 and 1998 calendar years in order to maximize the Additional
Consideration. The Shareholders acknowledge, however, that C. Lancashire's
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<PAGE> 17
flexibility will necessarily be subject to such limitations and controls as may
be appropriate (i) in light of Computec's status as a subsidiary of a public
company, and (ii) to ensure appropriate oversight of Computec's activities.
Notwithstanding anything to the contrary in this Agreement or any of the
Ancillary Agreements, DPRC acknowledges and agrees that during the 1997 and
1998 calendar years (A) C. Lancashire will retain sole approval concerning
DPRC's resource requests, and (B) DPRC shall not hire or take away any of
Computec's management, sales or administrative personnel without first
obtaining C. Lancashire's prior written consent.
3.3 Fractional Shares. No fractional DPRC Common Shares will be
issued as part of the Initial DPRC Shares pursuant to Section 3.1, above, or
the Additional DPRC Shares pursuant to Section 3.2, above, but, in lieu of such
issuance, any holder of Outstanding Class A Stock who would otherwise be
entitled to receive a fraction of a DPRC Common Share will receive from DPRC,
promptly after the Effective Time, or the Additional Consideration Payment
Date, as the case may be, an amount of cash equal to the DPRC Average Closing
Price multiplied by the fraction of a share of DPRC Common Shares to which such
holder of Outstanding Class A Stock would otherwise be entitled.
3.4 Limitations on Purchase Price. Notwithstanding anything in
this Agreement to the contrary, each of the Shareholders acknowledges and
agrees that in no event will (a) the aggregate number of the Additional DPRC
Shares exceed the aggregate number of the Initial DPRC Shares (as adjusted to
reflect subsequent stock splits or recapitalizations), (b) the aggregate number
of the Initial DPRC Shares and the Additional DPRC Shares exceed 2 million (as
adjusted to reflect subsequent stock splits or recapitalizations), or (c) the
sum of the Initial Cash Consideration and the Additional Cash Consideration
exceed 60% of the aggregate amount of the Initial Consideration and the
Additional Consideration.
(a) Form of Additional Consideration. If, for whatever
reason, any of the foregoing clauses would be violated by the payment of one
form of Additional Consideration (e.g., issuance of Additional DPRC Shares
would cause clause (a) of Section 3.4, above, to be violated) and the
conversion of all or part of such Additional Consideration to another form of
consideration (e.g., cash) would not cause any of the limitations contained in
Section 3.4, above, to be violated, then the form of such portion of the
Additional Consideration shall be converted, at the request of the Lancashires,
to that form of Additional Consideration that will not cause any of the
limitations of Section 3.4, above, to be violated. If, however, the conversion
of all or part of such Additional Consideration from one form to another (e.g.,
DPRC Common Shares to cash, or cash to DPRC Common Shares) cannot be effected
without violating any of the limitations contained in Section 3.4, above, then
the parties acknowledge and agree that, subject to Section 3.4(b), below, such
portion of the Additional Consideration shall be automatically excluded from,
and not constitute a part of, the Additional Consideration.
(b) Favorable Changes in Tax Laws. If, due to a change
in a tax Law, DPRC would be permitted to pay Additional Consideration to the
Shareholders in an amount that is in excess of that which would otherwise be
permitted under Section 3.4, above, without violating Section 8.5, below, which
determination shall be made by DPRC in its good faith judgment after
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<PAGE> 18
first consulting with its legal counsel and the DPRC Auditor, then DPRC shall
promptly pay the Shareholders such additional amounts of permitted Additional
Consideration. Notwithstanding the foregoing or anything in this Agreement to
the contrary, at no time shall the aggregate amount of the Initial
Consideration and the Additional Consideration hereunder exceed Seventy Million
and No/100 Dollars ($70,000,000.00).
(c) Other Changes or Developments. If DPRC is able to
take any other action that would permit DPRC to pay the Additional
Consideration to the Shareholders in an amount that is in excess of that which
would otherwise be permitted under Section 3.4, above, without violating
Section 8.5, below, which determination shall be made by DPRC in its good faith
judgment after first consulting with its legal counsel and the DPRC Auditor,
and the only adverse consequence to DPRC would be the obligation to pay that
amount of the Additional Consideration to the Shareholders, DPRC, at the
Shareholders' sole cost and expense, shall take such action. Notwithstanding
the foregoing or anything in this Agreement to the contrary, at no time shall
the aggregate amount of the Initial Consideration and the Additional
Consideration hereunder exceed Seventy Million and No/100 Dollars
($70,000,000.00).
3.5 Escrowed Shares. A number of the Shareholders' Shares equal
to one-half (1/2) of the Initial DPRC Shares minus a number of the Initial DPRC
Shares which when multiplied by the DPRC Average Closing Price, equals One
Million and No/100 Dollars ($1,000,000.00) (the "Escrowed Shares") shall be
held by an escrow agent (the "Escrow Agent") pursuant to an escrow agreement in
substantially the form attached hereto as Exhibit E (the "Escrow Agreement"),
to secure claims by DPRC for the indemnification obligations of the Lancashires
pursuant to Section 8.3, below. All costs and expenses of the Escrow Agent in
connection with the Escrow Agreement shall be shared equally by the Lancashires
and DPRC.
3.6 No Further Rights. The Shareholders' receipt of the Initial
Consideration and the receipt of the amount of the Additional Consideration to
which they become entitled to receive under this Agreement, if any, shall be
deemed to be in full satisfaction of all of their rights pertaining to Computec
Stock.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF COMPUTEC
Computec hereby represents and warrants to DPRC that the following
statements are true and complete and not misleading as of the Closing Date:
4.1 Organization and Qualification of Computec. Computec is a
corporation duly organized, validly existing and in good standing under the
Laws of the State of California. Computec has the requisite corporate power
and authority to own, lease and operate its assets and conduct the Business as
presently conducted. Except as set forth in Schedule 4.23 hereto, Computec is
qualified to do business as a foreign corporation in each jurisdiction of the
United States and other nations where the character of its properties owned or
leased or the nature of
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its activities makes such qualification necessary, except where the failure to
be so qualified or in good standing would not, in the aggregate, have a
material adverse effect on Computec. Copies of Computec's Articles of
Incorporation, certified by the California Secretary of State, and Bylaws,
certified by Computec's Secretary, each of which is attached as Schedule 4.1
hereto, is complete and correct and, since the respective dates of
certification thereof, there have not been any amendments thereof.
4.2 Authorization. Computec has the requisite power, authority
and legal right and capacity to enter into this Agreement and, to the extent
that Computec is a party thereto, the agreements attached as Exhibits hereto
(the "Ancillary Agreements"), to perform its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby.
The execution, delivery and performance by Computec of this Agreement and such
Ancillary Agreements have been duly authorized by all necessary corporate
action on the part of Computec to make this Agreement and the Ancillary
Agreements valid and binding upon Computec in accordance with their respective
terms.
4.3 Due Execution and Delivery; Binding Obligations. This
Agreement and, to the extent Computec is a party thereto, each of the Ancillary
Agreements have been duly executed and delivered by Computec. This Agreement
and, to the extent Computec is a party thereto, each of the Ancillary
Agreements constitute the legal, valid and binding agreement and obligation of
Computec, enforceable against Computec in accordance with their terms, except
as enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or conveyance or similar Laws relating to or
limiting creditors' rights generally or by equitable principles relating to
enforceability and except as rights of indemnity or contribution may be limited
by federal or state securities or other Laws or the public policy underlying
such Laws.
4.4 No Conflict or Violation. Neither the execution and delivery
of this Agreement and the Ancillary Agreements by Computec nor the consummation
of the transactions contemplated hereby and thereby, will result in (a) a
violation of, or a conflict with, Computec's charter documents or any
subscription, shareholders' or similar types of agreements or understandings to
which Computec is a party; (b) a breach of, or a default (or an event which,
with notice or lapse of time or both would constitute a default) under or
result in the termination of, or accelerate the performance required by, or
create a right of termination or acceleration under, any Contract, Encumbrance
or Permit to which Computec is a party or by which the Business is bound or
affected; (c) the payment by, or the creation of any obligation (absolute or
contingent) to pay on behalf of, any party of any severance, termination,
"golden parachute" or other similar payments pursuant to any employment or
other Contracts of Computec, or Computec's current or former officers,
directors or employees; (d) to Computec's and the Lancashires' knowledge, a
violation by Computec of any applicable Law; (e) a violation by Computec of any
order, judgment, writ, injunction decree or award known to Computec or the
Lancashires to which Computec is a party or by which the Business is affected;
or (f) an imposition of any Encumbrance.
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4.5 Consents and Approvals. Except as set forth on Schedule 4.5
hereto, no consent, Permit, approval or authorization of, or declaration,
filing, application, transfer, registration with, any governmental or
regulatory authority, or any other person or entity is required to be made or
obtained by Computec by virtue of its execution, delivery and performance of
this Agreement or any of the Ancillary Agreements or to avoid the loss of any
Permit, or the violation, breach or termination of, or any default under, or
the creation of Encumbrances on any of the assets or properties of Computec
pursuant to the terms of any Law, or to enable DPRC to continue the lawful and
efficient operation of the Business following the Closing as presently
conducted and as presently proposed to be conducted.
4.6 Pending Litigation. Except as disclosed on Schedule 4.6
hereto, there is no pending or, to Computec's and the Lancashires' knowledge,
threatened Action, whether private or public, affecting Computec or the
Business which could reasonably be expected to affect the enforceability of
this Agreement or any of the Ancillary Agreements or which could reasonably be
expected to materially and adversely affect the Business, Computec's assets or
properties, or Computec's ability to consummate the transactions contemplated
by or perform its obligations under this Agreement or any of the Ancillary
Agreements.
4.7 Capitalization of Computec. The authorized capital stock of
Computec consists of 2,000,000 shares of Class A Stock, of which 200,000 shares
are issued and outstanding, and 3,000,000 shares of Class B Stock, of which
300,000 shares are issued and outstanding. The issued and outstanding shares
of capital stock of Computec consist solely of the Computec Stock, which is
more specifically described on Schedule 4.7 hereto, and are held entirely by
the Shareholders. Other than this Agreement, and except as set forth on
Schedule 4.7 hereto, there is not outstanding any subscription, option,
warrant, call, right or other agreement or commitment obligating Computec to
issue, sell, deliver or transfer (including any right of conversion or exchange
under any outstanding security or other instrument) any shares of the Computec
Stock or any other shares of the capital stock of Computec. All of the shares
of the Computec Stock are duly and validly authorized, issued and outstanding,
fully paid and non-assessable. Computec does not have any Subsidiaries and
none of the Business has been or is being conducted by Computec International
Resources (U.K.) Limited.
4.8 Financial Statements. Computec has furnished to DPRC copies
of: (a) the audited balance sheets of Computec at December 31, 1996 and 1995
and the related statements of income, shareholders' equity and cash flows for
the periods ended December 31, 1996, 1995 and 1994, together with the related
notes thereto and the auditors' report thereon, (b) Computec's internally
prepared balance sheet at March 31, 1997, and the related statements of income
and cash flows for the three-month period then ended, and (c) Computec's
internally prepared gross margin analysis for each of January, February and
March 1997. All financial statements referred to in this Section 4.8 (the
"Financial Statements") are complete and correct, have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis during the respective periods, and fairly present the
financial condition of Computec as at the respective dates thereof and the
results of operations of Computec for the respective periods covered by the
statements of income contained therein. The Financial
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Statements are attached hereto as Schedule 4.8. All reserves made by Computec
in the Financial Statements are appropriate and adequate for all known or
anticipated liabilities. Computec has provided and disclosed to DPRC, its
accountants and other Representatives all material facts and information
relating to the preparation of the Financial Statements.
4.9 Undisclosed Liabilities. Except as set forth on Schedule 4.9
hereto, Computec does not have any liabilities or obligations (absolute,
accrued, contingent or otherwise) related to the Business or its assets or
properties except (a) liabilities reflected on the Financial Statements, (b)
liabilities incurred since the Balance Sheet Date in the ordinary course of
business, and (c) liabilities arising under any Contract in the ordinary course
of conducting the Business.
4.10 Absence of Certain Changes or Events. Since the Balance Sheet
Date, except as set forth on Schedule 4.10 hereto, there has not been any:
(a) Amendment to Computec's Articles of Incorporation or
Bylaws; issuance of any shares of the capital stock of Computec; or issuance or
creation of any warrants, obligations, subscriptions, options, convertible
securities or other commitments under which any additional shares of the
capital stock of Computec of any class have been or might be, directly or
indirectly, authorized, issued or transferred;
(b) Declaration, setting aside or payment of any dividend
by Computec; distribution in respect of the capital stock of Computec; or
purchase or redemption, directly or indirectly, of any shares of the capital
stock of Computec;
(c) Increase in the salary or other compensation payable
or to become payable by Computec to any of its officers, directors, partners or
employees earning a salary or total compensation in excess of $100,000; the
declaration, payment, or commitment or obligation of any kind for the payment,
by Computec, of a bonus or other additional salary or compensation to any such
person; the repayment by Computec of any loan from such person; or the payment
by Computec of any accrued but unpaid salaries, distributions or any other
payments, whether in cash or property, to any such person;
(d) Change in accounting methods or practices by Computec
(including, without limitation, any change in depreciation, amortization or
valuation policies or rates or any change in billing and revenue recognition
policies) or revaluation of any of its assets, liabilities or reserves
reflected on the Financial Statements, or any change in any assumption
underlying or methods of calculating any bad debt, contingency or other
reserves related to the Business;
(e) Agreement entered into not in the usual and ordinary
course of the Business; or capital expenditure, or the incurring of any
obligation to make any capital expenditure, by Computec in excess of $10,000
per item;
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(f) Agreement entered into to provide technical
contractors at a fixed pricing arrangement (i.e., at a price which is
determined other than with respect to payment of an hourly, daily, per diem or
monthly rate);
(g) Payment by or on behalf of Computec other than in the
ordinary course of business of any obligation or liability, whether fixed or
contingent; waiver or compromise by Computec other than in the ordinary course
of business of any right or claim; or cancellation by Computec, without full
payment, of any note, loan or other obligation owed to Computec;
(h) Failure to pay or satisfy when due any obligation of
Computec except where such failure would not adversely affect Computec, the
Business, its assets or its liabilities;
(i) Amendment, rescission, expiration or termination of
any of Computec's existing Contracts or agreements other than in the ordinary
course of business and which involve payments or receipts of more than $10,000
per annum, including, without limitation, the lapse, expiration or termination
of any insurance coverage;
(j) Sale, transfer, disposal of or agreements to sell,
transfer or otherwise dispose of, any of the assets, properties or rights of
Computec other than in the ordinary course of business; destruction, damage to,
or loss of any of Computec's assets or properties (whether or not covered by
insurance) used or useable in the Business; or disposition or lapsing of any
Intellectual Property or any disclosure to any person (other than persons
subject to confidentiality agreements) of any Intellectual Property;
(k) Labor dispute or other similar event or condition of
any character adversely affecting the prospects, earnings, properties or
condition, financial or otherwise, of the Business;
(l) Other event or condition of any character which it is
reasonable to expect will, individually or in the aggregate, adversely affect
Computec, its assets or the Business or Computec's ability to perform its
obligations hereunder; or
(m) Agreement by Computec or the Shareholders to do or
cause any of the things described in clauses (a) through (l), above.
4.11 Properties. Schedule 4.11 hereto sets forth a complete and
correct list of all assets owned by Computec at the Balance Sheet Date which
have been treated as capital assets. Computec does not own any real property.
Except as set forth on Schedule 4.11 hereto, Computec has good, indefeasible
and marketable title to, or a valid leasehold interest in, or a valid license
to use, all of the personal property used in and material to the Business, in
each case free and clear of all Encumbrances. All personal property owned or
leased by Computec is in good order and operating condition, ordinary wear and
tear excepted, and free from any defects, except for such minor defects which
do not substantially interfere with the continued
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use thereof in the conduct of normal operations in the manner and to the extent
such assets are presently being used.
4.12 Books and Records. Computec has made and kept (and given
DPRC's Representatives access to) the Books and Records, which, in reasonable
detail, accurately and fairly reflect the activities and transactions of
Computec related to the Business, the dispositions of assets related to the
Business, and the financial condition of Computec and the Business, including,
without limitation, the existence of any and all liabilities, whether actual or
contingent, including, without limitation, Computec Tax and Other Liabilities.
4.13 Intellectual Property.
(a) Schedule 4.13 hereto is a complete and correct list
of all of the material Intellectual Property. Except as set forth on Schedule
4.13 hereto, (a) the Intellectual Property is owned by Computec or Computec has
a valid license to use the same, (b) neither the Lancashires nor Computec has
received any notice or claim disputing Computec's right to own or use any such
Intellectual Property, and (c) to Computec's and the Lancashires' knowledge,
Computec's right to own or use the Intellectual Property is not disputed by any
third party. Except as set forth on Schedule 4.13 hereto, the Intellectual
Property is owned by Computec free and clear of all Encumbrances. The
Intellectual Property constitutes all of the proprietary rights necessary and
sufficient for the lawful and efficient operation of the Business as presently
conducted. To Computec's and the Lancashires' knowledge, Computec is not
infringing upon or otherwise acting adversely to any property owned by any
other person with respect to the Intellectual Property which has been received
and used by Computec, nor is there any Action by any person pending or, to
Computec's and the Lancashires' knowledge, threatened with respect thereto.
(b) Schedule 4.13 hereto accurately discloses all
licenses, sublicenses or agreements by which Computec holds or has given to
others the right to use the Intellectual Property. Computec is not in default
and, to Computec's and the Lancashires' knowledge, no third party is in
default, under any such license, sublicense or agreement.
4.14 Leases. Schedule 4.14 hereto sets forth a true, correct and
complete list and description of all Leases. All of the Leases are in good
standing, legal, valid, binding and in full force and effect, all rents and
additional rents due to date under each such Lease have been paid in full, and
there is not under any of such Leases any existing default, violation or breach
by Computec or event or condition which after notice or lapse of time or both
would constitute a default, violation or breach. Computec has provided DPRC
with true and correct copies of all such Leases.
4.15 Receivables. Attached hereto as Schedule 4.15 are true and
complete lists of Computec's accounts receivable (the "Receivables") at March
31, 1997 and unbilled accounts receivable (the "Unbilled Receivables") at March
31, 1997, including all of the foregoing with respect to Affiliated Parties.
Except to the extent collected since such date, all Receivables are
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reflected on Schedule 4.15, and all Receivables and Unbilled Receivables
accruing or created between such dates and the Effective Time are and will be
(a) valid bona fide claims against debtors for sales or other charges, and (b)
subject to no defenses, set-offs or counterclaims. To Computec's and the
Lancashires' knowledge, no additional loss reserves are required with respect
to the Receivables and Unbilled Receivables other than that which is currently
provided for in the Financial Statements. Neither Computec nor the Lancashires
have any reason to believe that any of the Receivables and Unbilled Receivables
are not collectible in accordance with their terms.
4.16 Contracts.
(a) Schedule 4.16 hereto contains a complete and correct
list of all Contracts, whether written or oral, (i) to which Computec is a
party or by which it is bound, or (ii) by which any of the assets, properties
or the Business is bound or subject, and, in either case, which constitute:
(i) Mortgages, indentures, security agreements
and other agreements and instruments relating to the borrowing of money by, or
any extension or credit to, Computec;
(ii) Sales agency or marketing agreement;
(iii) Agreements or commitments for capital
expenditures;
(iv) Brokerage or finder's agreements;
(v) Partnership, joint venture or other
arrangements or agreements involving a sharing of profits or expenses,
including any strategic partnering relationship with foreign affiliates;
(vi) Contracts or commitments to sell, acquire,
lease or otherwise dispose of any assets, properties or business other than in
the ordinary course of business;
(vii) Contracts or commitments limiting the
freedom of Computec to compete in any line of business or in any geographic
area or with any person;
(viii) Other agreements, contracts or commitments
which in any case are not terminable by Computec on at least 30 days' written
notice and involve payments or receipts of more than $10,000 per annum; and
(ix) Any other agreements, contracts or
commitments material to the Business, operations or financial condition of
Computec and which are not specifically excluded from disclosure under any of
subparagraphs (i) through (viii), above (i.e., Contracts involving payments or
receipts less than $10,000 per annum under subparagraph (viii), above).
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(b) Schedule 4.16 hereto sets forth a correct and
complete list of the 20 largest customers (by sales volume) (the "Major
Customers") of the Business during the 12-month period ended at the Balance
Sheet Date indicating the sales to such Major Customers within such period and
the existing contractual arrangements with each such Major Customer. As of the
Balance Sheet Date, Computec had no outstanding Contracts with customers
requiring payments or credits in excess of $500, or any prepaid amounts, except
for those listed on Schedule 4.16 hereto. There are no outstanding disputes
with any Major Customer, and no Major Customer has refused to do business with
Computec or has stated its intention not to continue to do business with or
increase or reduce its purchases from Computec or DPRC upon consummation of the
transactions contemplated hereby. Except as reserved for in the Financial
Statements, neither Computec nor the Lancashires has any reason to believe that
any customer account is not collectible in accordance with its terms. No
existing contractual arrangement with a customer contains any fixed price
arrangement.
(c) At the Balance Sheet Date, Computec had no
outstanding Contract with suppliers or vendors requiring payments in excess of
$10,000 on an annualized basis except those listed on Schedule 4.16 hereto.
(d) Computec has delivered to DPRC or its Representatives
complete and correct copies of all written Contracts, together with all
amendments thereto, and accurate descriptions of all oral Contracts, listed on
Schedules 4.13, 4.14 and 4.16 hereto or required to be listed thereon. All of
the Contracts are valid and in full force and effect and Computec has duly
performed all of its obligations under each Contract to the extent those
obligations have accrued and no default, violation or breach by Computec under
any Contract has occurred which affects the enforceability of such Contract or
any parties' rights thereunder.
4.17 Employment Matters.
(a) Schedule 4.17 hereto sets forth a complete and
correct list of all the names, current annual rates of salary, bonuses,
employee benefits, accrued vacation times, sick pay and other compensation,
date of hire and location of all the present employees, contractors and agents
of Computec who provide services in connection with the Business. Except as
set forth on Schedule 4.17 hereto, none of such persons has received or will
receive an increase in salary or other compensation from Computec prior to the
third business day after the Closing Date. Except as set forth on Schedule
4.17 hereto, there are no employment or consulting contracts or arrangements,
including pensions, bonus or profit sharing plans, or other severance or
termination contracts or arrangements which constitute contractual obligations
of Computec not terminable on 30 calendar days or less. There are no
collective bargaining agreements with any union or other bargaining group for
any of Computec's employees, nor is Computec aware of any efforts by its
employees or contractors to organize or participate in any of the foregoing.
To Computec's and the Lancashires' knowledge, no employee or contractor is in
violation of any of its obligations to, or any employment agreement with, a
prior employer. Except as set forth on Schedule 4.17 hereto, no key employee
or contractor of Computec has left Computec since the Balance Sheet Date and no
current key employee or consultant has indicated any present or
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future intention to terminate his or her employment with Computec. Computec
has made available to DPRC true and correct copies of all performance reviews
conducted of the persons set forth on Schedule 4.17.
(b) Computec has complied with all provision of Law
pertaining to the employment and terminating of employees, the hiring and
terminating of contractors, and the immigration of foreign nationals,
including, without limitation all such Laws relating to labor relations, equal
employment practices, fair employment practices, entitlements, prohibited
discrimination, terms and conditions of employment, wages and hours,
independent contractor classification, withholding requirements or other
similar employment or hiring practices or acts, and Computec is not engaged in
any unfair labor practices and is not a party to any Action involving a
violation or alleged violation of any of any of the foregoing Laws. Without
limiting the generality of the foregoing, Computec has complied in all respects
with the WARN Act, COBRA, the Immigration and Nationality Act, as amended, and
the Immigration Reform and Control Act of 1986, including, without limitation,
completing a Form I-9 for every employee of Computec, and maintaining all such
Form I-9(s) and related information in accordance with such acts. Except as
set forth on Schedule 4.6 hereto, no employee, contractor or governmental
agency or authority has brought or threatened an Action against Computec with
respect to any matter arising out of, relating to or in connection with such
employee's or contractor's employment by Computec.
4.18 Employee Benefits.
(a) Schedule 4.18 hereto contains a complete and accurate
list of all Employee Benefit Plans maintained, or contributed to, by Computec.
Complete and accurate copies of (i) all Employee Benefit Plans which have been
reduced to writing, (ii) written summaries of all unwritten Employee Benefit
Plans, (iii) all related trust agreements, insurance contracts and summary plan
descriptions, and (iv) all annual reports filed on IRS Form 5500, 5500C or
5500R for the last five plan years for each Employee Benefit Plan, have been
delivered to DPRC. Each Employee Benefit Plan has been administered in all
material respects in accordance with its terms and Computec has in all material
respects met its obligations with respect to such Employee Benefit Plan and has
made all required contributions thereto. Computec and all Employee Benefit
Plans are in compliance in all material respects with the currently applicable
provisions of ERISA and the Code and the regulations thereunder.
(b) To Computec's and the Lancashires' knowledge, there
are no investigations by any governmental entity, termination proceedings or
other claims (except claims for benefits payable in the normal operation of the
Employee Benefit Plans and proceedings with respect to qualified domestic
relations orders), suits or proceedings against or involving any Employee
Benefit Plan or asserting any rights or claims to benefits under any Employee
Benefit Plan that could give rise to any material liability.
(c) All the Employee Benefit Plans that are intended to
be qualified under Section 401(a) of the Code have received determination
letters from the Internal Revenue Service
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to the effect that such Employee Benefit Plans are qualified and the plans and
the trusts related thereto are exempt from federal income taxes under Sections
401(a) and 501(a), respectively, of the Code, no such determination letter has
been revoked and revocation has not been threatened, and no such Employee
Benefit Plan has been amended since the date of its most recent determination
letter or application therefor in any respect, and no act or omission has
occurred, that would adversely affect its qualification or materially increase
its cost.
(d) Except as set forth on Schedule 4.18 hereto, Computec
has never ever maintained an Employee Benefit Plan subject to Section 412 of
the Code or Title IV of ERISA.
(e) At no time has Computec been obligated to contribute
to any "multi-employer plan" (as defined in Section 4001(a)(3) of ERISA).
(f) There are no unfunded obligations under any Employee
Benefit Plan providing benefits after termination of employment to any employee
of Computec (or to any beneficiary of any such employee), including but not
limited to retiree health coverage and deferred compensation, but excluding
continuation of health coverage required to be continued under Section 4980B of
the Code and insurance conversion privileges under state Law.
(g) No act or omission has occurred and no condition
exists with respect to any Employee Benefit Plan maintained by Computec that
would subject Computec to any material fine, penalty, tax or liability of any
kind imposed under ERISA or the Code.
(h) No Employee Benefit Plan is funded by, associated
with, or related to a "voluntary employee's beneficiary association" within the
meaning of Section 501(c)(9) of the Code.
(i) No Employee Benefit Plan, plan documentation or
agreement, summary plan description or other written communication distributed
generally to employees by its terms prohibits Computec from amending or
terminating any such Employee Benefit Plan.
(j) Schedule 4.18 hereto discloses each: (i) agreement
with any director, executive officer or other key employee of Computec (A) the
benefits of which are contingent, or the terms of which are materially altered,
upon the occurrence of a transaction involving Computec of the nature of any of
the transactions contemplated by this Agreement, (B) providing any term of
employment or compensation guarantee, or (C) providing severance benefits or
other benefits after the termination of employment of such director, executive
officer or key employee; (ii) agreement, plan or arrangement under which any
person may receive payments from Computec that may be subject to the tax
imposed by Section 4999 of the Code or included in the determination of such
person's "parachute payment" under Section 280G of the Code; and (iii)
agreement or plan binding Computec, including without limitation any stock
option plan, stock appreciation right plan, restricted stock plan, stock
purchase plan, severance benefit plan, or any Employee Benefit Plan, any of the
benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions
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contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by this
Agreement.
4.19 Transactions with Affiliated Parties. Attached hereto as
Schedule 4.19 is a true and complete list and description of all transactions
engaged in between Computec and any director, officer, employee, shareholder
(including the Shareholders) or agent of Computec or any of their spouses or
children, any trust of which any such person is the grantor, trustee or
beneficiary, any corporation of which any such person or party is a
shareholder, employee, officer or director, or any partnership or other entity
in which any such person or party owns an interest (all such persons, trusts,
corporations and entities being herein referred to collectively as "Affiliated
Parties" and individually as an "Affiliated Party"). No Affiliated Party has
any ownership interest, directly, indirectly or beneficially, in any competitor
or potential competitor, supplier or customer of Computec.
4.20 Certain Payments. Neither the Shareholders nor Computec, nor
to Computec's or the Lancashires' knowledge, any other entity has, directly or
indirectly, on behalf of or with respect to Computec: (a) made an unreported
political contribution; (b) made or received any payment which was not legal to
make or receive; (c) engaged in any transaction or made or received any payment
which was not properly recorded in the Books and Records; (d) created or used
any "off-book" bank or cash account or "slush fund"; or (e) engaged in any
conduct constituting a violation of the Foreign Corrupt Practices Act of 1977.
4.21 Taxes.
(a) Computec has paid, or accrued on the Balance Sheet,
all federal, state, local and foreign income, alternative, add-on, gross
receipts, franchise, payroll, F.I.C.A., unemployment withholding, real
property, personal property, admissions, gains, replacement, sales, use,
excise, payroll, disability and other taxes imposed on Computec or with respect
to any of its properties, or otherwise payable by it, including interest,
penalties and other additions, if any, in respect thereof (collectively,
"Computec Taxes"), for all taxable periods ended on or prior to the Balance
Sheet Date for which Computec, or any predecessor entity, was in existence.
After the Balance Sheet Date, Computec has paid, or accrued on its financial
books, only Computec Taxes incurred in the ordinary course of business
determined in the same manner as in the applicable preceding taxable period
ending on or before the Balance Sheet Date.
(b) Without limiting the foregoing representations in any
way, (i) Computec has collected all sales, use and value added taxes required
to be collected, and has remitted, or will remit on a timely basis, such
amounts to the appropriate governmental authorities and has furnished properly
completed exemption certificates for all exempt transactions, and (ii) with
respect to all persons properly characterized as employees for federal, state
or local tax purposes, Computec has (A) properly and timely withheld,
collected, deposited and paid income and social security and other similar
taxes, and (B) properly and timely paid social security and other payroll
taxes.
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(c) Computec has timely filed all returns (including
estimated returns), reports and other filings related to Computec Taxes (the
"Tax Returns") which Computec is required to file and has paid all the amounts
shown to be due thereon. All the Tax Returns are true and correct and
complete. Computec has delivered to DPRC complete copies of all the Tax
Returns for the last three taxable periods for which the Tax Returns have been
filed. Computec is not required to file Tax Returns in any foreign, state or
local jurisdiction for any tax period except in those foreign, state and local
jurisdictions in which it has filed.
(d) With respect to the foreign and United States
federal, state and local income Tax Returns of Computec which have been audited
by the Internal Revenue Service or other tax authority or are closed, to
Computec's and the Lancashires' knowledge, there are no proceedings or claims
relating thereto or any facts that could give rise to the reopening thereof.
(e) No audit, examination, proceeding or other Action is
pending or, to Computec's and the Lancashires' knowledge, threatened by any
governmental authority with respect to the possible assessment or collection
from Computec of any Computec Taxes, no unresolved claim for assessment or
collection of any Computec Taxes has been asserted against Computec, and all
resolved assessments of Computec Taxes have been paid. Computec has delivered
to DPRC complete copies of all audit reports and other governmental claims
asserting Computec Taxes in addition to those Computec Taxes set forth on the
Tax Returns of Computec.
(f) During the period commencing on January 1, 1996 and
ending on April 3, 1997, Computec was an "S corporation" within the meaning of
Section 1361(a) of the Code, and a valid election under Section 1362 of the
Code had been in effect with respect to Computec at all times for such period.
A valid S corporation or similar election has been in effect with respect to
Computec during such period in all relevant state and local jurisdictions in
which Computec is subject to Computec Tax. For such periods, each of the
Lancashires has filed in a timely fashion with each of the Internal Revenue
Service and the appropriate tax authority for all relevant state and local tax
jurisdictions a consent to such S corporation or similar elections with respect
to Computec. Except as set forth on Schedule 1.1 (a) hereto, Computec has not
been, and will not be, subject to tax under Section 1374 or Section 1375 of the
Code for any taxable year ending on or prior to the Effective Time.
(g) There are no liens for Computec Taxes (other than for
current Computec Taxes not yet due and payable) upon the assets of Computec.
(h) Computec is not a party to or bound by any tax
sharing, tax indemnity or tax allocation agreement or other similar
arrangement.
(i) Computec has not taken any action that would require
an adjustment pursuant to Section 481 of the Code, by reason of a change in
accounting method or otherwise, except in connection with Computec's change
from the cash to accrual basis of accounting in January 1, 1995.
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(j) Computec has not filed a consent under Section
341(f)(1) of the Code or agreed to have the provisions of Section 341(f)(2) of
the Code apply to any disposition of "subsection (f) assets" as such term is
defined in Section 341(f)(4) of the Code.
(k) Computec has not made any payments, is obligated to
make any payments or is a party to any agreement that under certain
circumstances could obligate it to make any payments that would not be
deductible under Section 280G of the Code.
(l) Computec has not executed or entered into any closing
agreement pursuant to Section 7121 of the Code, or any predecessor provisions
thereof or any similar provision of state or other Law.
(m) Neither Computec nor any Shareholder has made any
agreement, waiver or other arrangement providing for an extension of time with
respect to the assessment or collection of any Computec Tax.
4.22 Compliance with Laws. Computec's operation of the Business is
in compliance in all material respects with all other Laws for which a more
specific representation regarding such compliance is not provided elsewhere in
this Agreement. Neither Computec nor the Lancashires' have received any notice
from or otherwise been advised that any governmental authority or other person
is claiming any violation or potential violation of any Law.
4.23 Permits. Computec holds, free from all Encumbrances and
burdensome restrictions, all Permits. Each of the Permits is sufficient for
the lawful and efficient operation of the Business as presently conducted and
as presently proposed to be conducted. Attached hereto as Schedule 4.23 is a
list of all such Permits, true and complete copies of which have been furnished
to DPRC. All Permits required for the lawful and efficient operation of the
Business as presently conducted and as presently proposed to be conducted will
be in full force and effect at the Effective Time.
4.24 Insurance. Attached as Schedule 4.24 hereto is a true and
complete list and summary of all insurance maintained by Computec with respect
to the Business during the past three years. Computec has provided DPRC with
true and correct copies of all such insurance policies. Computec has not
agreed to modify or cancel any of such insurance, nor has Computec received
notice of any actual or threatened modification or cancellation of such
insurance.
4.25 Brokers, Finders, etc. All negotiations relating to this
Agreement and the transaction contemplated hereby have been carried on without
the intervention of any person acting on behalf of the Shareholders or Computec
in such manner as to give rise to any claim against DPRC, Computec or any of
their respective Representatives for any brokerage or finders' commission, fee
or similar compensation.
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4.26 Banking Facilities.
(a) Schedule 4.26 hereto sets forth a true, correct and
complete list of: (i) each bank, savings and loan or similar financial
institution at which Computec has an account, safety deposit box, line of
credit or credit facility and the numbers of the accounts or safety deposit
boxes maintained by Computec thereat and details, including terms, of any line
of credit or credit facility; and (ii) the names of all persons authorized to
draw on each such account or to have access to any such safety deposit box
facility, together with a description of the authority (and conditions thereof,
if any) of each such person with respect thereto.
(b) All of the outstanding indebtedness (secured or
unsecured) for borrowed money of Computec may be prepaid without the consent or
approval of, or prior notice to, any other person, and without payment of any
premium or penalty.
4.27 Full Disclosure. No representation, warranty or other
statement of Computec contained in this Agreement, any of the Ancillary
Agreements or any other document, certificate or written statement furnished to
DPRC in connection with the transactions contemplated by this Agreement or any
of the Ancillary Agreements contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained herein or therein not materially misleading. There is no material
fact known to Computec which adversely affects the prospects, earnings,
properties or condition, financial or otherwise, of the Business that has not
been disclosed herein or in such other documents, certificates and statements
furnished to DPRC for use in connection with the transactions contemplated
hereby.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE LANCASHIRES
Each of the Lancashires, jointly and severally, represents and
warrants to DPRC that the following statements are true and complete and not
misleading as of the Closing Date:
5.1 Authorization. Each of the Lancashires has the requisite
power, authority and legal right and capacity to enter into this Agreement and
the Ancillary Agreements to which he or she is a party, to perform his or her
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby.
5.2 Due Execution and Delivery; Binding Obligations. This
Agreement and, to the extent either of the Lancashires is a party, each of the
Ancillary Agreements have been duly executed and delivered by such Shareholder.
This Agreement and, to the extent either of the Lancashires is a party, each of
the Ancillary Agreements constitute the legal, valid and binding agreement and
obligation of such Shareholder, enforceable against him or her in accordance
with their respective terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or
conveyance or similar Laws relating to or limiting creditors' rights generally
or by equitable principles relating to enforceability and except
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as rights of indemnity or contribution may be limited by federal or state
securities or other Laws or the public policy underlying such Laws.
5.3 No Conflict or Violation. Neither the execution and delivery
of this Agreement and, to the extent either of the Lancashires is a party, the
Ancillary Agreements, nor the consummation of the transactions contemplated
hereby and thereby, will result in (a) a violation of, or a conflict with, any
subscription, shareholders' or similar types of agreements or understandings to
which he or she is a party; (b) a breach of, or a default (or an event which,
with notice or lapse of time or both would constitute a default) under or
result in the termination of, or accelerate the performance required by, or
create a right of termination or acceleration under, any Contract, Encumbrance
or Permit to which he or she is a party; (c) a violation by him or her of any
applicable Law; or (d) a violation by him or her of any order, judgment, writ,
injunction decree or award to which he or she is a party.
5.4 Consents and Approvals. No consent, Permit, approval or
authorization of, or declaration, filing, application, transfer, registration
with, any governmental or regulatory authority, or any other person or entity
is required to be made or obtained by either of the Lancashires by virtue of
his or her execution, delivery and performance of this Agreement or any of the
Ancillary Agreements.
5.5 Title to Computec Stock. Each of the Shareholders owns
beneficially and of record the number and type of shares of the Computec Stock
opposite its, his or her name as set forth on Schedule 4.7 hereto, free and
clear of all Encumbrances affecting its, his or her ability to consummate the
transactions contemplated hereby. Except as set forth on Schedule 4.7 hereto,
there is not outstanding any subscription, option, warrant, call, right or
other agreement or commitment obligating a Shareholder or Computec to issue,
sell, deliver or transfer (including any right of conversion or exchange under
any outstanding security or other instrument) any shares of the Computec Stock
or any other shares of the capital stock of Computec.
5.6 Computec's Representations and Warranties. All of the
representations and warranties of Computec contained herein and in each of the
Ancillary Agreements to which it is a party are true and correct and not
materially misleading.
5.7 Securities Law Matters. Each of the Lancashires represents
and warrants to DPRC that: (a) he or she is acquiring his or her Initial DPRC
Shares and Additional DPRC Shares (collectively, the "Shareholders' Shares")
for his or her account, and not with a view to any sale, distribution or
disposition in violation of any federal or state securities Laws; (b) he or she
has been given the opportunity to obtain any information or documents, and to
ask questions and receive answers about such documents, about DPRC which he or
she deems necessary to evaluate the merits and risks related to his or her
investment in his or her Shareholders' Shares and he or she understands and has
taken cognizance of all risk factors related to such transactions; and (c) he
or she can afford to bear the economic risk of holding the unregistered
Shareholders' Shares for an indefinite period of time, can afford to suffer a
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complete loss of his or her investment in his or her Shareholders' Shares, and
he or she has adequate means for providing for his or her needs and
contingencies; He or she acknowledges that the certificates and instruments
evidencing his or her Shareholders' Shares will bear the following legends in
addition to any other legend that may be required under the Escrow Agreement:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES OR BLUE SKY LAWS OF CALIFORNIA OR
ANY OTHER STATE AND MAY BE OFFERED AND SOLD ONLY IF REGISTERED
AND QUALIFIED PURSUANT TO THE RELEVANT PROVISIONS OF FEDERAL
AND STATE SECURITIES OR BLUE SKY LAWS OR IF AN EXEMPTION FROM
SUCH REGISTRATION OR QUALIFICATION IS APPLICABLE.
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER, AS MORE SPECIFICALLY SET
FORTH IN AN AGREEMENT AND PLAN OF MERGER DATED APRIL 29, 1997,
AMONG DATA PROCESSING RESOURCES CORPORATION, DPRC ACQUISITION
CORP., COMPUTEC INTERNATIONAL STRATEGIC RESOURCES, INC. AND
ALL OF THE SHAREHOLDERS OF COMPUTEC INTERNATIONAL STRATEGIC
RESOURCES, INC.
5.8 Full Disclosure. No representation, warranty or other
statement of the Lancashires contained in this Agreement, any of the Ancillary
Agreements or any other document, certificate or written statement furnished to
DPRC in connection with the transactions contemplated by this Agreement or any
of the Ancillary Agreements contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading. There is no material fact known to
the Lancashires which adversely affects the prospects, earnings, properties or
condition, financial or otherwise, of the Business that has not been disclosed
herein or in such other documents, certificates and statements furnished to
DPRC for use in connection with the transactions contemplated hereby.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF DPRC AND ACQUISITION
DPRC and Acquisition hereby represent and warrant to the Shareholders
that the following statements are true and complete and not misleading as of
the Closing Date:
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6.1 Organization. Each of DPRC and Acquisition is a corporation
duly incorporated, validly existing and in good standing under the Laws of the
State of California. Each of DPRC and Acquisition has the requisite corporate
power and authority to own and operate its business as presently conducted.
Each of DPRC and Acquisition is qualified to do business as a foreign
corporation in each jurisdiction of the United States where the character of
its properties owned or leased or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified or in good
standing would not, in the aggregate, have a material adverse effect on DPRC or
Acquisition, respectively. Copies of the Articles of Incorporation of
Acquisition, certified by the California Secretary of State, and bylaws of
Acquisition, certified by Acquisition's secretary, are attached hereto as
Schedule 6.1, are complete and correct and, since the respective dates of
certification thereof, there have not been any amendments thereof.
6.2 Authorization. Each of DPRC and Acquisition has the requisite
corporate power, authority and legal right and capacity to enter into this
Agreement and, to the extent DPRC or Acquisition is a party thereto, the
Ancillary Agreements, to perform its obligations hereunder and thereunder and
to consummate the transactions contemplated hereby and thereby.
6.3 Due Execution and Delivery; Binding Obligations. The
execution, delivery and performance by each of DPRC and Acquisition of this
Agreement and, to the extent DPRC or Acquisition is a party thereto, the
Ancillary Agreements have been duly authorized by the Board of Directors of
DPRC and Acquisition, respectively, and the sole shareholder of Acquisition.
No further corporate action is necessary on the part of DPRC or Acquisition to
make this Agreement and the Ancillary Agreements to which it is a party valid
and binding upon DPRC and Acquisition in accordance with their respective
terms. This Agreement and, to the extent DPRC or Acquisition is a party
thereto, the Ancillary Agreements have been duly executed and delivered by DPRC
and Acquisition, constitute the valid and binding obligations of DPRC and
Acquisition, enforceable against DPRC and Acquisition in accordance with their
respective terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or conveyance or
similar Laws relating to or limiting creditors' rights generally or by
equitable principles relating to enforceability and except as rights of
indemnity or contribution may be limited by federal or state securities or
other Laws or the public policy underlying such Laws.
6.4 No Conflict or Violation. Neither the execution and delivery
of this Agreement and the Ancillary Agreements by DPRC and Acquisition, nor the
consummation of the transactions contemplated hereby and thereby, will result
in (a) a violation of, or a conflict with, DPRC's or Acquisition's charter
documents or any subscription, shareholders' or similar types of agreements or
understandings to which DPRC or Acquisition is a party; (b) to DPRC's and
Acquisition's knowledge, a violation by DPRC or Acquisition of any Law; or (c)
a violation by DPRC or Acquisition of any order, judgment, writ, injunction
decree or award known to DPRC and Acquisition to which DPRC or Acquisition is a
party.
6.5 Consents and Approvals. Except as set forth on Schedule 6.5
hereto, no consent, permit, approval or authorization of, or declaration,
filing, application, transfer or registration
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with, any governmental or regulatory authority, or to DPRC's and Acquisition's
knowledge, any other person or entity is required to be made or obtained by
DPRC or Acquisition by virtue of its execution, delivery and performance of
this Agreement, any of the Ancillary Agreements or DPRC's and Acquisition's
consummation of the transactions contemplated hereby or thereby other than
state and federal filings that may be required under securities Laws with
respect to the issuance and sale of the Shareholders' Shares.
6.6 Valid Issuance of Shareholders' Shares. Each of the
Shareholders' Shares when issued, sold and delivered in accordance with the
terms hereof, will be duly and validly issued, fully-paid and nonassessable.
6.7 Capital Structure.
(a) Capital Structure of DPRC. The authorized capital
stock of DPRC consists of 20,000,000 DPRC Common Shares and 2,000,000 shares of
Preferred Stock ("DPRC Preferred Shares"). As of January 31, 1997, there were
not more than 10,197,547 DPRC Common Shares outstanding, no shares of DPRC
Preferred Shares outstanding, and not more than 1,227,800 DPRC Common Shares
reserved for issuance upon the exercise of outstanding employee stock options
and 250,000 DPRC Common Shares reserved for issuance under DPRC's employee
stock purchase plan (collectively, the "DPRC Options"). All outstanding DPRC
Common Shares are, and any DPRC Common Shares issued on exercise of any DPRC
Options will be, validly issued, fully paid, non-assessable and not subject to
any preemptive rights or to any agreement to which DPRC is a party or by which
DPRC may be bound.
(b) Capital Structure of Acquisition. The authorized
capital stock of Acquisition consists of 1,000,000 shares of Common Stock,
1,000 of which are issued and outstanding and owned by DPRC (the "Acquisition
Shares"). The Acquisition Shares are validly issued, fully paid,
non-assessable and not subject to any preemptive rights or to any agreement to
which Acquisition or DPRC is a party or by which Acquisition or DPRC may be
bound.
6.8 Organization of Acquisition. Acquisition was duly
incorporated and organized in the State of California on April 7, 1997, for the
sole purpose of consummating the transactions contemplated by this Agreement.
Acquisition has not conducted any other operations or businesses since such
date nor, to DPRC's and Acquisition's knowledge, has it assumed, incurred or
otherwise succeeded to, whether by agreement, operation of Law or otherwise,
voluntarily or involuntarily, any material liabilities or obligations since
such date, except that Acquisition, in connection with Seller's request for a
tax clearance certificate, has covenanted with the California Franchise Tax
Board to be responsible for certain Computec Taxes upon consummation of the
Merger.
6.9 SEC Compliance. Since DPRC's initial public offering of DPRC
Common Shares in March 1996, DPRC has filed all necessary disclosure documents
and reports in connection with its securities and, to DPRC's knowledge, all
such documents and reports contain no untrue statement of material fact or omit
to state any material fact necessary to make the information
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contained therein, in light of the circumstances under which they were made,
not misleading, except to the extent corrected by subsequently filed documents.
6.10 Brokers, Finders, etc. All negotiations relating to this
Agreement and the transaction contemplated hereby have been carried on without
the intervention of any person (other than W.E. Myers & Company) acting on
behalf of DPRC or Acquisition in such manner as to give rise to any claim
against the Shareholders or any of their respective Representatives for any
brokerage or finders' commission, fee or similar compensation.
6.11 Full Disclosure. No representation, warranty or other
statement of DPRC or Acquisition contained in this Agreement, any of the
Ancillary Agreement or any other document, certificate or written statement
furnished to the Lancashires in connection with the transactions contemplated
by this Agreement or any of the Ancillary Agreements contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained hereto or therein not misleading.
ARTICLE 7
THE CLOSING
7.1 Closing. The closing of the Merger (the "Closing") shall take
place at the offices of Riordan & McKinzie, 300 South Grand Avenue, Suite 2900,
Los Angeles, California, at 11:00 a.m. local time concurrently with the
execution of this Agreement, or at such other place, time and date as may be
mutually agreed to by the parties (the "Closing Date").
7.2 Deliveries by Computec and the Shareholders. On the Closing
Date, Computec and the Shareholders shall deliver the following:
(a) A certificate or certificates representing all of the
Computec Stock, registered in the name of the Shareholders, duly endorsed by
the Shareholders for transfer to DPRC or accompanied by an assignment of the
shares of the Computec Stock duly executed by the Shareholders, and any other
documents that are necessary to transfer to DPRC good and marketable title to
all shares of the Computec Stock;
(b) Evidence of Computec and the Shareholders having
obtained all licenses, Permits, authorizations, consents and approvals of and
filings with any governmental or regulatory agencies required to be obtained or
made in connection with the consummation of the transactions contemplated by
this Agreement;
(c) The Escrow Agreement referred to in Section 3.5,
above;
(d) An executed employment agreement among DPRC,
Acquisition and C. Lancashire in the form of Exhibit F hereto (the "C.
Lancashire Employment Agreement");
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(e) An executed employment agreement among DPRC,
Acquisition and each of A. Lancashire, Jeffery Estep and Sara Smith Ray, each
in substantially the form of Exhibit G hereto (the "Executive Employment
Agreements");
(f) The registration rights agreement in the form
attached hereto as Exhibit H (the "Registration Rights Agreement"), duly
executed by the Lancashires;
(g) A tax clearance certificate from the California
Franchise Tax Board that legally enables Computec to effect the Merger as the
disappearing corporation in the Merger in accordance with the California Law;
(h) A legal opinion from Clark & Trevithick, legal
counsel for Computec and the Shareholders, dated as of the Closing Date as to
such matters as DPRC shall have reasonably requested; and
(i) All other agreements, documents, instruments and
writings required to be delivered by Computec or the Shareholders pursuant to
this Agreement.
7.3 Deliveries by DPRC. On the Closing Date, DPRC shall deliver
the following:
(a) The Escrow Agreement contemplated by Section 3.5,
above;
(b) The C. Lancashire Employment Agreement contemplated
by Section 7.2(d), above;
(c) The Executive Employment Agreements contemplated by
Section 7.2(e), above;
(d) The Registration Rights Agreement contemplated by
Section 7.2(f), above;
(e) A legal opinion from Riordan & McKinzie, legal
counsel for DPRC and Acquisition, dated the Closing Date, as to such matters as
the Shareholders shall have reasonably requested; and
(f) All other agreements, documents, instruments and
writings required to be delivered by DPRC pursuant to this Agreement.
ARTICLE 8
POST CLOSING
8.1 Survival of Representations and Warranties. Regardless of any
investigation at any time made by or on behalf of any party, or of any
information any party may have in respect thereof, all representations and
warranties made hereunder or pursuant hereto or in
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connection with the transactions contemplated hereby shall survive the Closing
for a period of two years, except all representations and warranties with
respect to Computec Taxes and ownership of the Computec Stock shall survive
until the close of business on the 120th day following the expiration of the
applicable statute of limitations (each, a "Survival Date").
8.2 Post-Closing Adjustment.
(a) Within 90 days after the Effective Time, DPRC shall
cause DPRC's Auditor to compute the amount of Computec Adjusted Working Capital
at the Effective Time and Computec Adjusted Net Worth at the Effective Time,
and DPRC shall provide to the Shareholders and Shareholder's Auditor, for their
review and approval, DPRC's Auditor's computations and working papers
reflecting how such computations were made. If the Shareholders or
Shareholder's Auditor have any objections to the computation of Computec
Adjusted Working Capital at the Effective Time or Computec Adjusted Net Worth
at the Effective Time, they will deliver detailed statements describing their
objections to DPRC within 30 days after receiving DPRC's Auditor's computations
and working papers reflecting how such computations were made. The parties
will use their reasonable efforts to resolve any such objections. If, however,
the parties do not obtain final resolution of this matter within 30 days after
DPRC has received the statements of objections, the dispute shall be referred
to the Accountant within 15 days following such 30-day period. The
Accountant's determination of the amount of Computec Adjusted Working Capital
at the Effective Time and Computec Adjusted Net Worth at the Effective Time
shall be rendered by the Accountant in a writing setting forth in reasonable
specificity the reasons for each conclusion reached in its decision. The
Accountant's determination shall be binding upon all parties. However, in the
event that the decision of the Accountant is clearly erroneous, as determined
in accordance with applicable procedures set forth in Section 11.3, below, then
the decision of the Accountant may be vacated or corrected in the same manner
as provided for in California Code of Civil Procedure Sections 1286.2 or 1286.6
for any such error. DPRC and the Shareholders shall use their best efforts,
and shall cause DPRC's Auditor and Shareholder's Auditor, respectively, to aid
the Accountant in reaching a decision within 30 days from the date the dispute
is tendered to the Accountant. DPRC and the Shareholders will share
responsibility for the fees and expenses of the Accountant based on the degree
to which the Accountant accepts the respective positions of the parties, as
conclusively determined by the Accountant.
(b) If either Computec Adjusted Working Capital at the
Effective Time is less than $2.5 million, or Computec Adjusted Net Worth at the
Effective Time is less than $2.6 million, then, in such event, the Lancashires,
jointly and severally, shall pay to DPRC within 10 business days of such
determination a cash amount equal to the greater of the following:
(i) The difference between $2.5 million and
Computec Adjusted Working Capital at the Effective Time; and
(ii) The difference between $2.6 million and
Computec Adjusted Net Worth at the Effective Time.
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(c) If, however, each of Computec Adjusted Working
Capital at the Effective Time is more than $3.3 million, or Computec Adjusted
Net Worth at the Effective Time is more than $3.7 million, then, in such event,
Purchaser shall pay to the Shareholders within 10 business days of such
determination a cash amount equal to one-half (1/2) of the greater of the
following:
(i) The difference between $3.3 million and
Computec Adjusted Working Capital at the Effective Time; and
(ii) The difference between $3.7 million and
Computec Adjusted Net Worth at the Effective Time.
8.3 Indemnification Obligations.
(a) Indemnification by the Lancashires. In addition to
the agreements set forth in Article 10, below, the Lancashires, jointly and
severally, shall indemnify, defend and hold harmless DPRC, the Surviving
Corporation and any of their affiliates and their respective Representatives
and their respective heirs, executors, administrators, successors and assigns
(collectively, the "DPRC Representatives"), and shall reimburse DPRC, the
Surviving Corporation and any of their affiliates and the DPRC Representatives,
on demand, for any Damages resulting from any of the following:
(i) Any breach or default in the performance by
the Shareholders or Computec of any covenant or agreement of the Shareholders
or Computec contained herein, in any agreement contemplated hereby, or in any
Schedule or Exhibit hereto or thereto, or in any certificate or other
instrument delivered or to be delivered by or on behalf of the Shareholders or
Computec pursuant hereto or thereto;
(ii) Any breach of warranty or inaccurate or
erroneous representation made by the Shareholders or Computec herein, in any
agreement contemplated hereby, or in any Schedule or Exhibit hereto or thereto,
or in any certificate or other instrument delivered or to be delivered by or on
behalf of the Shareholders or Computec pursuant hereto or thereto;
(iii) The operation of the Business through and
including the Effective Time, except for (A) any and all liabilities,
obligations and commitments of Computec relating exclusively to the Business
and that are (1) reflected on the Balance Sheet, or (2) incurred after the
Balance Sheet Date in the ordinary course of business consistent with prior
practice and in accordance with the terms of this Agreement, and (B) any and
all liabilities, obligations and commitments of Computec arising out of the
Contracts, but not including any liability, obligation or commitment of
Computec for any breach thereof by Computec or a predecessor-in-interest
occurring prior to the Effective Time;
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(iv) Without limiting the generality of
subparagraph (iii), above, any failure by Computec to be duly qualified to do
business as a foreign corporation or in good standing in any jurisdiction; and
(v) Without limiting the generality of
subparagraph (iii), above, any failure by Computec to maintain workers'
compensation insurance in any jurisdiction.
(b) Indemnification by DPRC. In addition to the
agreements set forth in Article 10, below, DPRC shall indemnify, defend and
hold harmless the Shareholders, and any of their respective Representatives,
and their respective heirs, executors, administrators, successors and assigns
(collectively, the "Shareholder Representatives"), and shall reimburse the
Shareholders and the Shareholder Representatives, on demand, for any Damages
resulting from any of the following:
(i) Any breach or default in the performance by
DPRC or Acquisition of any covenant or agreement of DPRC or Acquisition
contained herein, in any agreement contemplated hereby, or in any Schedule or
Exhibit hereto or thereto, or in any certificate or other instrument delivered
or to be delivered by or on behalf of DPRC or Acquisition pursuant hereto or
thereto;
(ii) Any breach of warranty or inaccurate or
erroneous representation made by DPRC or Acquisition herein, in any agreement
contemplated hereby, or in any Schedule or Exhibit hereto or thereto, or in any
certificate or other instrument delivered or to be delivered by or on behalf of
DPRC or Acquisition pursuant hereto or thereto;
(iii) The operation of the Business after the
Effective Time, except to the extent that such Damages arise out of the
negligent, reckless or wilful misconduct of any of the Shareholders or the
Shareholder Representatives; or
(iv) Without limiting the generality of
subparagraph (iii), above, any and all Computec Taxes attributable to
operations of the Business after the Effective Time.
(c) Claims for Indemnity. Whenever a claim for Damages
shall arise for which one party ("Indemnitee") shall be entitled to
indemnification hereunder, Indemnitee shall notify the other party
("Indemnitor") in writing within 30 days of the first receipt of notice of such
claim, and in any event within such shorter period as may be necessary for
Indemnitor to take appropriate action to resist such claim. Such notice shall
specify all facts known to Indemnitee giving rise to such indemnity rights and
shall estimate the amount of the liability arising therefrom. The right of
Indemnitee to indemnification and the estimated amount thereof, as set forth in
this notice, shall be deemed agreed to by Indemnitor unless, within 30 days
after the mailing of such notice, Indemnitor shall notify Indemnitee in writing
that it disputes the right of Indemnitee to indemnification, or that Indemnitor
elects to defend such claim in the manner provided in Section 8.3(d), below.
If Indemnitee shall be duly notified of such dispute, the dispute shall be
resolved in accordance with Section 11.3, below.
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(d) Defense of Claims. Upon receipt by Indemnitor of a
notice from Indemnitee with respect to any claim of a third party against
Indemnitee, and acknowledgment by Indemnitor (whether after resolution of a
dispute or otherwise) of Indemnitee's right to indemnification hereunder with
respect to such claim, Indemnitor shall assume the defense of such claim with
counsel reasonably satisfactory to Indemnitee and Indemnitee shall cooperate to
the extent reasonably requested by Indemnitor in defense or prosecution thereof
and shall furnish such records, information and testimony and attend all such
conferences, discovery proceedings, hearings, trials and appeals as may be
reasonably requested by Indemnitor in connection therewith. If Indemnitor
shall acknowledge Indemnitee's right to indemnification and elect to assume the
defense of such claim, Indemnitee shall have the right to employ its own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of Indemnitee. If Indemnitor has assumed the defense of any claim
against Indemnitee, Indemnitor shall have the right to settle any claim for
which indemnification has been sought and is available hereunder; provided
that, to the extent that such settlement requires Indemnitee to take, or
prohibits Indemnitee from taking, any action or purports to obligate
Indemnitee, then Indemnitor shall not settle such claim without the prior
written consent of Indemnitee. If Indemnitor does not assume the defense of a
third party claim and disputes Indemnitee's right to indemnification,
Indemnitor shall have the right to participate in the defense of such claim
through counsel of its choice, at Indemnitor's expense, and Indemnitee shall
have control over the litigation and authority to resolve such claim subject to
this Section 8.3. If the Lancashires, as the indemnifying party, fail to give
written notice to DPRC, as the indemnified party, of the Lancashires' intention
to contest or settle any such claim within 20 calendar days after DPRC has
notified the Lancashires that any such claim has been made in writing and
received by DPRC, or if any such notice is given but any such claim is not
properly contested by the Lancashires, notwithstanding any provision herein to
the contrary, DPRC shall have the right to satisfy and discharge the same by
payment, compromise or otherwise, in accordance with the procedures set forth
in the Escrow Agreement. DPRC's rights, benefits and privileges, and the
Lancashires' liabilities, obligations and commitments, under and pursuant to
the Escrow Agreement are more specifically described therein and incorporated
herein by this reference.
(e) Limitations on Warranty Claims. Notwithstanding
anything to the contrary in Sections 8.3(a) and (b), above, Indemnitor shall
not be obligated to indemnify Indemnitee for any Damages caused by or arising
out of, and Indemnitee shall not be entitled to make any claim for Damages due
to, any breach of warranty or inaccurate or erroneous representation made by
Indemnitor herein (other than representations and warranties with respect to
Computec Taxes and ownership of the Computec Stock), in any agreement
contemplated hereby, or in any Schedule or Exhibit hereto or thereto, or in any
certificate or other instrument delivered or to be delivered by or on behalf of
Indemnitor pursuant hereto or thereto (collectively, "Warranty Claims"), unless
and until the amount of all of such Indemnitee's claims for Damages caused by
or arising out of Warranty Claims, in the aggregate, shall be equal to
$200,000, in which case Indemnitee shall be entitled to recover all Damages
incurred by Indemnitee in excess of $200,000; provided, however, that if the
amount of all of such Indemnitee's claims for Damages caused by or arising out
of Warranty Claims, in the aggregate, shall be equal to or exceed
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$250,000, then Indemnitee shall be entitled to recover all Damages incurred by
Indemnitee, including such initial $250,000 in Damages.
(f) Defense of Claimed Breaches. For purposes of this
Section, any assertion of fact and/or law by a third party which, if true,
would constitute a breach of a representation or warranty made by a party to
this Agreement shall, on the date that assertion is made, be deemed a breach of
such representation or warranty and immediately invoke that party's obligation
to protect, defend, hold harmless and indemnify the other party to this
Agreement.
8.4 DPRC's Right of Offset. If DPRC incurs any Damages for which
it is entitled to indemnification from the Lancashires under this Agreement,
DPRC may, at its option and without prejudice to any right of DPRC to proceed
directly against the Lancashires under Section 8.3, above, apply all or any
part of the Additional Cash Consideration that is payable to the Lancashires
(specifically excluding herein any portion of the Additional Cash Consideration
that is payable to the Trustee) in order to pay, or to provide for the payment
of, any of such Damages. The exercise of wuch right of offset by DPRC
hereunder shall be evidenced by such means of a notice to such effect given by
DPRC to the Lancashires. Upon the exercise by DPRC of its right to offset
hereunder, (a) the amount to which DPRC is entitled to offset shall be, and is
deemed to be, applied in reduction of, and shall constitute a payment of, the
amounts due under Sections 3.2, above, to the extent specified in the notice of
offset, and (b) a number of the Escrowed Shares shall be released to the
Lancashires from the Escrow Account (as defined in the Escrow Agreement) such
that the number of such Escrowed Shares when multiplied by the Share Price (as
defined in the Escrow Agreement) shall be as close as practicable to (without
exceeding) the amount of the Additional Cash Consideration being offset
hereunder.
8.5 Tax-Free Treatment; Charges to Income. None of the parties
shall take any action, directly or indirectly, that would prevent the Merger
from qualifying as a tax-free reorganization under Section 368(a)(2)(D) of the
Code. Without limiting the generality of the foregoing, neither of the
Lancashires shall, directly or indirectly, sell or engage in any transaction
which may result in a change in the legal, beneficial or record ownership of
the Shareholders' Shares, or any interest therein, including, without
limitation, a voluntary or involuntary sale, assignment, transfer, option,
pledge, hypothecation, encumbrance, disposal, loan, gift, attachment or levy (a
"Transfer"), without first obtaining the prior written consent of DPRC to the
Transfer, which consent may not be unreasonably withheld by DPRC. Neither of
the Lancashires shall make any Transfer of the Shareholders' Shares to an
employee or former employee of the Surviving Corporation for compensatory
purposes.
8.6 Board Representation. At the next meeting of the Board of
Directors of DPRC (the "Board") after the Effective Date, DPRC will increase
the authorized number of members of the Board from five to seven and will cause
C. Lancashire to be elected to the Board. DPRC shall nominate C. Lancashire as
a director to stand for election at DPRC's next annual meeting of stockholders.
During the 1997 and 1998 calendar years, DPRC shall also nominate and elect C.
Lancashire and Jeffery Estep as directors of the Surviving Corporation.
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8.7 Computec Reorganizations. During the 1997 and 1998 calendar
years, DPRC shall not merge, reorganize or consolidate Computec, or cause
Computec to enter into any type of reorganization, merger, consolidation or
similar type of transaction, without obtaining the prior written consent of C.
Lancashire, which consent may not be unreasonably withheld. Notwithstanding
the foregoing, DPRC acknowledges and agrees that any such consent by C.
Lancashire may be conditioned on a requirement that DPRC take all actions
reasonably necessary to ensure that there will be no adverse impact on DPRC's
ability to determine, or the Shareholders' ability to earn, the Additional
Consideration (e.g., continuing to account for the Business of Computec on a
stand-alone basis without regard to, or the integration of, the business being
reorganized, merged or consolidated with or into Computec).
8.8 Stock Options. At the Closing Date, each of the persons set
forth on Schedule 8.8 hereto shall be granted, under DPRC's 1994 Stock Option
Plan, as amended, options to purchase the number of shares of DPRC Common
Shares set forth opposite such person's name on Schedule 8.8 hereto. The
exercise price of each such option shall be the fair market value of the DPRC
Common Shares at the Closing Date. On or before each of January 1, 1998 and
January 1, 1999, DPRC shall use its best efforts to grant to the employees of
the Surviving Corporation to be designated by C. Lancashire, under DPRC's 1994
Stock Option Plan, as amended, or any successor or similar plan thereto,
options to purchase shares of DPRC Common Shares, as more specifically set
forth on Schedule 8.8 hereto. The exercise price of each such option shall be
the fair market value of the DPRC Common Shares on the date of grant.
8.9 Certain Covenants with Customers. Each of the parties
acknowledges that DPRC, DPRC's affiliates and Computec have, or may have,
entered into agreements with customers prohibiting or otherwise restricting
DPRC, DPRC's affiliates and/or Computec from entering into similar agreements
or arrangements with customers competing or engaged in similar businesses with
such customers of DPRC, DPRC's affiliates or Computec (the "Restrictive
Covenants"). Each of DPRC, the Surviving Corporation and the Lancashires agree
to use their reasonable best efforts to mitigate the impact, if any, that a
Restrictive Covenant has or may have on the Surviving Corporation's, DPRC's or
DPRC's affiliates' ability to conduct their respective businesses.
8.10 Payments by the Surviving Corporation. On the terms and
subject to the conditions of Schedule 1.1(b) hereto, the Surviving Corporation
shall pay the Third Party Payments. The Surviving Corporation acknowledges
that a dividend in the amount of Five Hundred Thousand and No/100 Dollars
($500,000.00) has been declared in favor of the Lancashires but remains unpaid
as of the date hereof. The Surviving Corporation shall pay the Lancashires the
dividend as follows: (a) Two Hundred Fifty Thousand and No/100 Dollars within
60 days after the Effective Time; (b) One Hundred Twenty-Five Thousand and
No/100 Dollars ($125,000.00) within 150 days after the Effective Time; and (c)
One Hundred Twenty-Five Thousand and No/100 Dollars ($125,000.00) within 240
days after the Effective Time.
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8.11 Further Assurances. Each of the parties, at any time on or
after the Closing Date, will execute, acknowledge and deliver any further
documents and instruments that may be reasonably requested by the other party,
for the purpose of consummating the Merger.
8.12 Expenses. The Lancashires will be solely responsible for and
bear all of their and Computec's respective cost and expenses, including,
without limitation, expenses of legal counsel, accountants, brokers, finders
and other advisors, incurred in connection with evaluating, negotiating and
consummating the proposed transaction incident to this Agreement. DPRC will be
solely responsible for and bear all of its cost and expenses, including,
without limitation, expenses of legal counsel, accountants, brokers, finders
and other advisors, incurred in connection with evaluating, negotiating and
consummating the proposed transaction incident to this Agreement. Without
limiting the generality of the foregoing, DPRC shall be solely responsible for
and bear any commission payable to W.E. Myers & Company in connection with the
consummation of this transaction.
ARTICLE 9
COVENANT NOT TO COMPETE
9.1 Non-Compete Covenant. The Lancashires agree that, from the
Effective Time and ending on the third anniversary thereof (the "Non-Compete
Period"), the Lancashires will not, without the prior written consent of DPRC,
directly or indirectly, in the United States, the United Kingdom or Australia
(the "Territory"), own, manage, finance, operate, join, control or participate
in the ownership, management, financing, operation or control of, or be
employed or connected in any manner with, any business that competes with the
Business; provided, however, that, with respect to each of the Lancashires, the
Non-Compete Period shall extend from the Effective Time through the third
anniversary of the termination of his or her C. Lancashire Employment Agreement
or Executive Employment Agreement, respectively.
9.2 Definition of Compete. For purposes of this Agreement, the
term "compete" shall mean (a) calling on, soliciting or taking away, as a
client or customer any individual, partnership, corporation or association that
is a client or customer of DPRC, the Surviving Corporation or Computec, or was
a client or customer of DPRC, the Surviving Corporation or Computec during the
36 calendar month period immediately preceding any such act for the purpose of
competing with DPRC, the Surviving Corporation or Computec; (b) hiring,
soliciting, taking away or attempting to hire, solicit or take away any
employee of DPRC or the Surviving Corporation either on behalf of itself or any
other person or entity; or (c) entering into or attempting to enter into any
business substantially similar to or competing in any way with the Business
within the Territory, either alone or with any individual, partnership,
corporation or association.
9.3 Direct or Indirect Competition. For purposes of this
Agreement, the words "directly or indirectly" as they modify the word "compete"
shall mean (a) acting as an agent, representative, consultant, officer,
director, independent contractor or employee of any entity
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or enterprise, which is competing (as defined in Section 9.2, above) with the
Business; (b) participating in any such competing entity or enterprise, or the
affiliate of such entity or enterprise, as an owner, partner, limited partner,
joint venturer, creditor or shareholder (except as a shareholder holding less
than a two percent interest in a corporation whose shares are actively traded
on a regional or a national securities exchanged or in the over-the-counter
market); or (c) communicating to any such competing entity or enterprise the
names or addresses or any other information concerning any past, present or
identified prospective client or customer of DPRC or the Surviving Corporation.
9.4 Confidential Data. The Shareholders agree that, during the
Non-Compete Period, and thereafter, each of them will keep confidential and not
directly or indirectly divulge, furnish, make accessible to third parties, or
appropriate for their own use any confidential information of DPRC or the
Surviving Corporation, and that at no time will either of them divulge, furnish
and make accessible to third parties or appropriate for their own use any trade
secrets of DPRC or the Surviving Corporation. Each of the Shareholders further
acknowledges and agrees that DPRC and the Surviving Corporation have a
legitimate interest in protecting proprietary customer information from
misappropriation or diversion by the Shareholders or any competitor. The
Shareholders hereby acknowledge and agree that the prohibitions against
disclosure of confidential data recited herein are in addition to, and not in
lieu of, any rights or remedies which DPRC or the Surviving Corporation may
have available pursuant to the Laws of any jurisdiction or at common law to
prevent the disclosure of trade secrets and other confidential proprietary
data, and the enforcement by DPRC or the Surviving Corporation of their rights
and remedies pursuant to this Agreement shall not be construed as a waiver of
any other rights or available remedies which it may possess in Law or equity
absent this Agreement.
9.5 Reasonableness of Restrictions. The Lancashires recognize
that the territorial and time limitations set forth in Section 9.1, above, are
reasonable, not burdensome and are properly required by Law for the adequate
protection of DPRC and the Surviving Corporation, and in the event that such
territorial or time limitations are deemed to be unreasonable by a court of
competent jurisdiction, then the Lancashires, DPRC and the Surviving
Corporation agree and submit to the reduction of either said territorial or
time limitation, or both, to such an area or period as said court shall deem
reasonable.
9.6 Injunctive Relief. The Lancashires acknowledge that their
expertise in the Business is of a special, unique, unusual, extraordinary and
intellectual character, which gives said expertise a peculiar value, and that a
breach by either or all of them of the provisions of this Agreement cannot be
reasonably or adequately compensated in Damages in an Action at Law and that
such breach will cause DPRC and the Surviving Corporation irreparable injury
and damage. The Lancashires further acknowledge that each of them possesses
unique skills, knowledge and ability that competition in violation of this
Agreement would be extremely detrimental to DPRC and the Surviving Corporation.
By reason thereof, the Lancashires agree that DPRC and the Surviving
Corporation shall be entitled, in addition to any other remedies each of them
may have under this Agreement or otherwise, to temporary, preliminary and/or
permanent injunctive and other equitable relief to prevent or curtail any
breach of this
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Agreement, without proof of actual damages that have been or may be caused to
DPRC or the Surviving Corporation by such breach or threatened breach;
provided, however, that no specification in this Agreement of a specific legal
or equitable remedy shall be construed as a waiver or prohibition against the
pursuing of other legal or equitable remedies in the event of a breach, by
either party.
ARTICLE 10
TAXES
10.1 Tax Indemnity. From and after the Effective Time, the
Lancashires shall jointly and severally indemnify and hold harmless DPRC and
the Surviving Corporation against the following Computec Taxes and, against any
Damages incurred in contesting or otherwise in connection with any such
Computec Taxes: (a) Computec Taxes imposed on any Shareholder or Computec with
respect to taxable years or periods ending on or before the Effective Time; (b)
with respect to taxable years or periods beginning before the Effective Time
and ending after the Effective Time, Computec Taxes imposed on any Shareholder
or Computec which are allocable, pursuant to Section 10.2, below, to the
portion of such taxable year or period ending on the Effective Time (an
"Interim Period") (Interim Periods and any taxable years or periods that end on
or prior to the Effective Time being referred to collectively hereinafter as
"Pre-Effective Periods"); (c) Computec Taxes imposed on any member of any
affiliated group (other than Computec) with which any Shareholder files or has
filed a Tax Return on a consolidated, combined or unitary basis for a taxable
year or period ending on or before the Effective Time; (d) Computec Taxes
required to be paid or reimbursed by any Shareholder under Section 10.4 or
Section 10.5, below (to the extent such Computec Taxes have not been paid by
such Shareholder); (e) Computec Taxes or additional Computec Taxes imposed on
DPRC or the Surviving Corporation as a result of a breach of the
representations and warranties set forth in Section 3.21 of this Agreement or
of the covenants contained in this Article 10; (f) Computec Taxes or other
payments required to be made after the Effective Time by the Surviving
Corporation to any party under any Tax sharing, indemnity or allocation
agreement (whether or not written); or (g) any foreign or United States
federal, state or local income or franchise taxes imposed on the Surviving
Corporation under Section 1374(a) of the Code (or any similar state or local
income or franchise tax provision) as a result of the transactions contemplated
hereunder. DPRC has been advised by the DPRC Auditor that it shall not be
required to file an amended Tax Return with respect to the reclassification of
recruiting expenses in connection with the annual Financial Statements attached
as Schedule 4.8 hereto. Accordingly, to the extent that DPRC files an amended
Tax Return with respect to such reclassification, DPRC shall be responsible
for, and neither of the Lancashires shall be required to indemnify DPRC for,
any Computec Taxes arising out of such amended Tax Return.
10.2 Apportionment of Computec Taxes. In order to apportion
appropriately any Computec Taxes relating to any taxable year or period that
includes an Interim Period, the parties shall, to the extent permitted under
applicable Law, elect with the relevant tax authority to treat for all
purposes, the Effective Time as the last day of the taxable year or period of
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Computec, and such Interim Period shall be treated as a short taxable year and
a Pre-Effective Period for purposes of this Article 10. In any case where
applicable Law does not permit Computec to treat the Effective Time as the last
day of the taxable year or period of Computec with respect to Computec Taxes
that are payable with respect to an Interim Period, the portion of any such
Computec Tax that is allocable to the portion of the Interim Period ending on
the Effective Time shall be:
(a) In the case of Computec Taxes that are either (i)
based upon or related to income or receipts, or (ii) imposed in connection with
any sale or other transfer or assignment of property (real or personal,
tangible or intangible) (other than conveyances pursuant to this Agreement,
which are covered under Section 10.5, below), deemed equal to the amount which
would be payable if the taxable year or period ended on the Effective Time
(except that, solely for purposes of determining the marginal tax rate
applicable to income or receipts during such period in a jurisdiction in which
such tax rate depends upon the level of income or receipts, annualized income
or receipts may be taken into account, if appropriate, for an equitable sharing
of such Computec Taxes); and
(b) In the case of Computec Taxes not described in
subparagraph (a), above, that are imposed on a periodic basis and measured by
the level of any item, deemed to be the amount of such taxes for the entire
period (or, in the case of such Computec Taxes determined on an arrears basis,
the amount of such Computec Taxes for the immediately preceding period)
multiplied by a fraction the numerator of which is the number of calendar days
in the Interim Period ending on the Effective Time and the denominator of which
is the number of calendar days in the entire relevant period.
10.3 Termination of Computec's S Corporation Status and Taxable
Year. Computec terminated its status as an S corporation, effective April 3,
1997. Pursuant to section 1362(e)(1) of the Code, Computec shall have two
short taxable years for United States federal income tax purposes for the year
that includes the Effective Time, an "S short year" beginning January 1 of such
year and ending April 3, 1997 and a "C short year" beginning on the next day
and ending on the Effective Time. The Lancashires shall cause Computec to
elect and shall consent, pursuant to section 1362(e)(3) of the Code, to
allocate tax items to Computec's S short year and C short year pursuant to
normal tax accounting rules (the "closing of the books method"). The
allocation of such items shall be done on a basis consistent with Computec's
past accounting practice and in a manner satisfactory to DPRC.
10.4 Preparation of Tax Returns. The Shareholders shall prepare
and file or otherwise furnish to the appropriate party (or cause to be prepared
and filed or so furnished) in a timely manner the United States federal income
tax return of Computec for Computec's S short year. In addition, Shareholders
shall prepare and file, or cause to be prepared and filed, any and all other
Tax Returns for, including or required to be filed by Computec for any taxable
year or period ending on or before the Effective Time, or the due date of which
(including extensions) is on or prior to the Effective Time. All such Tax
Returns shall be prepared in a manner consistent with the prior Tax Returns of
Computec, unless otherwise required under applicable
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Law. The Shareholders shall timely pay (or cause to be timely paid) all
Computec Taxes shown as due and owing on all such Tax Returns. DPRC shall
prepare and file, or cause to be prepared and filed any and all other Tax
Returns for, including or required to be filed by Computec for any taxable year
or period ending after the Effective Date or the due date of which (including
extensions) is after the Effective Time; provided, however, that any such Tax
Returns that include an Interim Period shall be prepared in a manner that is
consistent with applicable Law and the past practices of Computec. Subject to
its right to indemnification under this Article 10, DPRC shall pay (or cause to
be paid) all Computec Taxes shown as due and owing on all such Tax Returns.
The Shareholders, the Surviving Corporation and DPRC shall reasonably
cooperate, and shall cause their respective affiliates, officers, employees,
agents, auditors and other representatives reasonably to cooperate, in
preparing and filing all Tax Returns, including maintaining and making
available to each other all records necessary in connection with Computec Taxes
and in resolving all disputes and audits with respect to all taxable periods
relating to Computec Taxes. DPRC, the Surviving Corporation and each
Shareholder recognize that each Shareholder and the agents and other
representatives of each Shareholder will need access, from time to time, after
the Effective Time, to certain accounting and Computec Tax records and
information held by Computec to the extent such records and information pertain
to events occurring prior to the Effective Time; therefore, each of DPRC and
the Surviving Corporation agrees (i) to use its best efforts to properly retain
and maintain such records until such time as all Shareholders agree that such
retention and maintenance is no longer necessary (but in no event longer than
six years after the Effective Time), and (ii) to allow each Shareholder and the
agents of each Shareholder and other representatives, at times and dates
mutually acceptable to the parties, to inspect, review and make copies of such
records as Shareholders, their agents and other representatives may deem
necessary or appropriate from time to time, such activities to be conducted
during normal business hours and at the Shareholders' expense.
10.5 Transfer and Conveyance Taxes. The Lancashires shall be
jointly and severally liable for and shall pay all applicable sales, transfer,
recording, deed, stamp and other similar taxes, including, without limitation,
any real property transfer or gains taxes (if any), resulting from the
consummation of the transactions contemplated by this Agreement.
10.6 Contests. DPRC shall promptly notify the Shareholders in
writing of any written notice of a proposed assessment or claim in an audit or
administrative or judicial proceeding involving the Surviving Corporation
which, if determined adversely to the taxpayer, would be grounds for
indemnification under this Article 10; provided, however, that a failure to
give such notice will not affect DPRC's or the Surviving Corporation's right to
indemnification hereunder, except to the extent, if any, that, but for such
failure, the Shareholders could have avoided the tax liability in question.
Notwithstanding the foregoing, to the extent that any such assessment or audit
in any taxable year prior to the Effective Time will give rise to an offsetting
benefit in a tax year beginning after the Effective Time, then that item will
be offset and the Lancashires will not be liable for such additional tax. In
the case of an audit or administrative or judicial proceeding that relates to
any Pre-Effective Period, provided that within 30 days after each Shareholder
receives the written notice from DPRC required under this Article 10 and prior
to
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taking any action with respect to such audit or administrative or judicial
proceeding, such Shareholder acknowledges in writing his or its liability under
this Article 10 to hold DPRC and the Surviving Corporation harmless against the
full amount of any adjustment which may be made as a result of such audit or
proceeding, such Shareholder, together with all other such Shareholders, shall
have the right at its, his or her own expense to control the conduct of such
audit or proceeding; provided, however, that such Shareholders shall not settle
or otherwise compromise any issue or matter without DPRC's prior written
consent if such issue or matter will have a material affect on the liability
for Computec Taxes of DPRC or the Surviving Corporation for a post-Effective
Time taxable year or period (or for an Interim Period). DPRC also may
participate in any such audit or proceeding at its own expense and, if no
Shareholder assumes the defense of any such audit or proceeding, DPRC may,
without any effect to its or the Surviving Corporation's right to
indemnification under this Article 10, defend the same in such manner as it may
deem appropriate, including, but not limited to, settling such audit or
proceeding. If a Shareholder does not assume the defense of such audit or
proceeding and disputes DPRC's right to indemnification, such Shareholder shall
have the right to participate in the defense of such claim through counsel of
its choice, at such Shareholder's expense, but DPRC shall have control over the
litigation and authority to resolve such claim as stated herein.
10.7 Time of Payment. Payment of any amounts due under this
Article 10 in respect of Computec Taxes shall be made by each Shareholder at
least three business days before the due date of the applicable estimated or
final Tax Return required to be filed by DPRC on which is required to be
reported income for an Interim Period for which such Shareholder is responsible
under Sections 10.4 or 10.5 of this Agreement without regard to whether the Tax
Return shows overall net income or loss for such period, or, with respect to
indemnity payments due under Section 10.1 of this Agreement, within three
business days following a settlement or compromise of an assessment of a Tax by
a taxing authority or a "determination" as defined in Section 1313(a) of the
Code. If liability under this Article 10 is in respect of costs or expenses
other than Computec Taxes, payment by the Shareholders of any amounts due under
this Article 10 shall be made within five business days after the date that the
Shareholders have been notified by DPRC that the Shareholders have liability
for a determinable amount under this Article 10 and are provided with
calculations or other materials supporting such liability.
(a) Termination of the Shareholders' Indemnity
Obligations for Computec Taxes. Notwithstanding any provision herein to the
contrary, the obligations of the Shareholders to indemnify and hold harmless
DPRC and the Surviving Corporation pursuant to this Article 10 shall terminate
at the close of business on the 120th day following the expiration of the
applicable statute of limitations with respect to the liability for Computec
Taxes in question (giving effect to any waiver, mitigation or extension
thereof).
(b) Tax Elections. From and after the Closing Date, the
Shareholders shall not, without the prior written consent of DPRC, which may
not unreasonably withhold such consent, make or revoke, or cause or permit to
be made or revoked, any election with respect to Computec Taxes, or adopt or
change any method of accounting, that would adversely affect Computec.
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(c) Tax Sharing Agreements. As of the Effective Time,
any and all tax sharing, indemnity or allocation agreements shall terminate as
between Computec on the one hand, and the Shareholders, on the other hand, and,
after the Effective Time, no Computec Taxes or other amounts shall be paid or
reimbursed by the Surviving Corporation under any such agreement, regardless of
the taxable year or period for which such Computec Taxes are imposed, and the
provisions of this Article 10 shall govern thereafter.
ARTICLE 11
MISCELLANEOUS PROVISIONS
11.1 Entire Agreement. This Agreement, together with the
agreements referred to herein and in the Schedules and Exhibits hereto and
thereto, set forth the entire agreement between the parties with regard to the
subject matter of this Agreement. All agreements, covenants, representations
and warranties, express or implied, oral and written, of the parties with
regard to the subject matter of this Agreement are contained in this Agreement,
in the Schedules and Exhibits to this Agreement, and the documents referred to
or implementing the provisions of this Agreement. This is an integrated
agreement.
11.2 Governing Law. The validity, construction and performance of
this Agreement, and any Action arising out of or relating to this Agreement or
any of the Ancillary Agreements, shall be governed by the Laws, without regard
to the Laws as to choice or conflict of Laws, of the State of California.
11.3 Dispute Resolution. Except to the extent that a specific
dispute resolution mechanism is specified in this Agreement, the parties agree
that all controversies or claims arising out of or relating to this Agreement
or the Ancillary Agreements shall be resolved as follows:
(a) The parties will first attempt in good faith to
promptly resolve any such controversy or claim by negotiations between senior
executives of such parties who have the actual authority to settle the
controversy. The disputing party shall give the other party and, if
applicable, the Escrow Agent, written notice of the dispute. Within 20 days
after receipt of such notice, the receiving party shall submit to the other
and, if applicable, the Escrow Agent, a written response. The notice and
response shall include (i) a statement of each party's position and a summary
of the evidence and arguments supporting its position, and (ii) the name and
title of the executive who will represent that party. The executive shall meet
at a mutually acceptable time and place within 30 days of the date of the
disputing party's notice and thereafter as often as they reasonably deem
necessary to exchange relevant information and to attempt to resolve the
dispute.
(b) If the matter has not been resolved by the disputing
parties within 60 days after the disputing party's notice, or if the party
receiving such notice will not agree to meet with the disputing party within 30
days after its receipt of such notice, either party may initiate
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mediation of the controversy or claim in accordance with the Commercial
Mediation Rules of the American Arbitration Association.
(c) If the matter has not been resolved pursuant to the
mediation procedure referred to in Section 11.3(b), above, within 60 days of
the initiation of such procedure, or if either party will not participate in a
mediation, then the aggrieved party may, by notice as herein provided, require
that the dispute be submitted under the Commercial Arbitration Rules of the
American Arbitration Association ("AAA") then in effect, provided, further,
that the arbitration provisions of this Agreement shall govern over any
conflicting rules which may now or hereafter be contained in the AAA rules. To
the extent, and only to the extent, that the particular dispute is to be
determined by arbitration hereunder, each party knowingly waives that party's
right to a jury trial with respect to such dispute by agreeing to the
resolution of such dispute by arbitration pursuant to the provisions of this
Agreement.
(i) Binding Affect. No later than 60 days from
the date of closing of the arbitration hearing, or, if an oral hearing has been
waived, from the date of transmitting final statements and proofs to the
arbitrator, the arbitrator shall prepare and provide to the parties a written
decision (the "Decision") on all matter(s) which are the subject of the
arbitration, including the findings of fact and the conclusions of law which
are the basis of the Decision of the arbitrator. The arbitrator shall have the
authority to grant any equitable and legal remedies that would be available in
any judicial proceeding by a Judge of the Superior Court of the County of Los
Angeles in a non-jury trial; provided, however, that the arbitrator shall not
have the power to grant punitive damages. Any judgment upon the award rendered
by the arbitrator may be entered in any court having jurisdiction over the
subject matter thereof. The Decision shall be binding upon the parties.
However, in the event that the arbitrator shall commit a clear error of law or
legal reasoning in the Decision, the Decision and award may be vacated or
corrected in the same manner as provided for in California Code of Civil
Procedure Sections 1286.2 or 1286.6 for any such error.
(ii) Compensation of Arbitrator. Any such
arbitration shall be conducted before a single arbitrator who will be
compensated for his or her services at a rate to be determined by the parties
and by the AAA, but based upon reasonable hourly or daily consulting rates for
the arbitrator in the event the parties are not able to agree upon his or her
rate of compensation.
(iii) Selection of Arbitrator. The parties shall
use their best efforts to agree upon a mutually satisfactory arbitrator. If,
however, the parties are unable to agree upon the arbitrator, then the AAA
shall have the authority to select an arbitrator from a list of arbitrators who
are partners in a nationally recognized firm of independent certified public
accountants from the management advisory services department (or comparable
department or group) of such firm or who are partners in a major law firm;
provided, however, that neither the accounting firm, law firm nor the
individual arbitrator shall be a firm or individual that has within the last
three years rendered, or is then rendering, services to any party or, also in
the case of a law firm, a firm or an individual lawyer, who has appeared, or is
then appearing, as
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counsel of record in opposition to any party; provided, further, that the
individual arbitrator cannot have any other prior relationship or affiliation
to the disputing parties or any of their officers, directors or employees which
is likely to affect or compromise the arbitrator's independence.
(iv) Limited Discovery. The parties shall be
permitted reasonable discover under the rules set by the arbitrator. The
arbitrator shall have power to impose such sanctions as the arbitrator deems
appropriate for failure of a party or counsel for a party to comply in good
faith with the discovery rules established by the arbitrator.
(v) Payment of Costs. The parties will share
responsibility for the attorneys' fees and costs and all costs of arbitration,
including those provided for above, based on the degree to which the arbitrator
accepts the respective positions of the parties, as conclusively determined by
the arbitrator.
(vi) Terms of Arbitration. The arbitrator chosen
in accordance with these provisions shall not have the power to alter, amend or
otherwise affect the terms of these arbitration provisions, or any other
documents that are executed in connection therewith.
Negotiation, mediation or arbitration under this Section 11.3(c) shall be the
sole and exclusive remedy of the parties for any claim arising out of this
Agreement for which a specific dispute resolution or mechanism is not otherwise
applicable, provided, however, that a party may seek a preliminary injunction
or other preliminary relief if in its judgment such Action is necessary to
avoid irreparable damages. Any such Action may only be brought in the Superior
Court for the County of Los Angeles County, California. Despite such Action,
the parties will continue to participate in good faith in the procedures
specified in this Section 11.3.
11.4 Interpretation. The language in all parts of this Agreement
and each of the other Ancillary Agreements shall be in all cases construed
simply according to its fair meaning and not strictly for or against any party.
Whenever the context requires, all words used in the singular will be construed
to have been used in the plural, and vice versa, and each gender will include
any other gender. The captions of the Sections and Subsections of this
Agreement are for convenience only and shall not affect the construction or
interpretation of any of the provisions of this Agreement. All information of
a party contained in such party's Schedules hereto shall be deemed integrated
into and disclosed in all of such party's other Schedules, without the
necessity of any cross reference.
11.5 Waiver and Amendment. This Agreement may be amended,
supplemented, modified and/or rescinded only through an express written
instrument signed by all parties or their respective successors and permitted
assigns. Any party may specifically and expressly waive in writing any portion
of this Agreement or any breach hereof, but only to the extent such provision
is for the benefit of the waiving party, and no such waiver shall constitute a
further or continuing waiver of any preceding or succeeding breach of the same
or any other provision. The consent by one party to any act for which such
consent was required shall not be deemed
47
<PAGE> 53
to imply consent or waiver of the necessity of obtaining such consent for the
same or similar acts in the future, and no forbearance by a party to seek a
remedy for noncompliance or breach by another party shall be construed as a
waiver of any right or remedy with respect to such noncompliance or breach.
11.6 Assignment. Except as specifically provided otherwise in this
Agreement, neither this Agreement nor any interest herein shall be assignable
(voluntarily, involuntarily, by judicial process, operation of Law or
otherwise), in whole or in part, by any party without the prior written consent
of all other parties. Any attempt at such an assignment without such consent
shall be void and, at the option of the non-consenting party, shall be an
incurable breach of this Agreement resulting in the termination of this
Agreement.
11.7 Successors and Assigns. Each of the terms, provisions and
obligations of this Agreement shall be binding upon, shall inure to the benefit
of, and shall be enforceable by the parties and their respective legal
representatives, successors and permitted assigns.
11.8 Notices. All notices, requests, demands and other
communications made under this Agreement shall be in writing, correctly
addressed to the recipient at the addresses set forth below and shall be deemed
to have been duly given; (a) upon delivery, if served personally on the party
to whom notice is to be given; or (b) on the date or receipt, refusal or
non-delivery indicated on the receipt if mailed to the party to whom notice is
to be given by first class mail, registered or certified, postage prepaid, or
by air courier.
If to DPRC Data Processing Resources Corporation
or Acquisition: 4400 MacArthur Boulevard
Suite 600
Newport Beach, CA 92660-2037
Attn: Chief Operating Officer
Phone No.: (714) 553-1102
FAX No.: (714) 752-5850
With a copy to: Bart Greenberg, Esq.
Riordan & McKinzie
695 Town Center Drive
Suite 1500
Costa Mesa, CA 92629
If to a Shareholder c/o Computec International Strategic
Resources, Inc.
801 North Brand Blvd., Suite 650
Glendale, California 91203
Phone No.: (818) 500-3921
FAX No.: (818) 500-0332
48
<PAGE> 54
With a copy to: Robert F. DeMeter, Esq.
Clark & Trevithick
800 Wilshire Boulevard
12th Floor
Los Angeles, CA 90017
Any party may give written notice of a change of address in accordance with the
provisions of this Section 11.8 and after such notice of change has been
received, any subsequent notice shall be given to such party in the manner
described at such new address.
11.9 Severability. Each provision of this Agreement is intended to
be severable. Should any provision of this Agreement or the application
thereof be judicially declared to be or becomes illegal, invalid, unenforceable
or void, the remainder of this Agreement will continue in full force and effect
and the application of such provision to other persons or circumstances will be
interpreted so as reasonably to effect the intent of the parties.
11.10 Specific Performance. Each party's obligations under this
Agreement are unique. If any party should default in any of its obligations
under this Agreement, the parties each acknowledge that it would be
impracticable to measure the resulting damages. Accordingly, without prejudice
to the right to seek and recover monetary damages, each nondefaulting party
shall be entitled to sue in equity for specific performance of this Agreement
or other injunctive relief, and each party hereby waives any defense that a
remedy in damages would be adequate.
11.11 Cumulative Remedies. No remedy made available hereunder by
any of the provisions of this Agreement is intended to be exclusive of any
other remedy, and each and every remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing at
law or in equity or by statute or otherwise.
11.12 Warranty of Authority. Each of the individuals signing this
Agreement on behalf of a party hereto warrants and represents that such
individual is duly authorized and empowered to enter into this Agreement and
bind such party hereto.
11.13 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute a single agreement.
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<PAGE> 55
IN WITNESS WHEREOF, each of the parties has executed this Agreement as of
the Closing Date.
"DPRC": THE "SHAREHOLDERS":
DATA PROCESSING
RESOURCES CORPORATION, /s/ CHRISTOPHER W. LANCASHIRE
a California corporation ---------------------------------
CHRISTOPHER W. LANCASHIRE
By: /s/ DAVID M. CONNELL
-------------------------------
Its: President
--------------------------
/s/ ALICIA R. LANCASHIRE
----------------------------------
ALICIA R. LANCASHIRE
"ACQUISITION": /s/ RAYMOND J. SIELER
----------------------------------
MERRILL LYNCH TRUST COMPANY
DPRC ACQUISITION CORP., OF CALIFORNIA, a California
a California corporation corporation, as Trustee of the
Lancashire Charitable Remainder
Unitrust
By: /s/ DAVID M. CONNELL
-------------------------------
Its: President
--------------------------
"COMPUTEC":
COMPUTEC INTERNATIONAL
STRATEGIC RESOURCES, INC.,
a California corporation
By: /s/ CHRISTOPHER W. LANCASHIRE
-------------------------------
Its: President
--------------------------
50
<PAGE> 1
EXHIBIT 2.2
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered
into as of this 29th day of April 1997, by and between Data Processing Resources
Corporation, a California corporation (the "Company"), Christopher W.
Lancashire, an individual ("C. Lancashire"), and Alicia R. Lancashire, an
individual ("A. Lancashire"). C. Lancashire and A. Lancashire are collectively
referred to herein as the "Lancashires."
R E C I T A L S
A. The Company, DPRC Acquisition Corp., a California corporation and a
wholly-owned subsidiary of the Company ("Acquisition"), Computec International
Strategic Resources, Inc., a California corporation ("Computec"), the
Lancashires, and the other shareholder of Computec have entered into an
Agreement and Plan of Merger dated of even date herewith (the "Merger
Agreement"), pursuant to which Computec is merging with and into Acquisition.
B. The Company has issued to the Lancashires 679,292 shares of the common
stock of the Company (the "Initial DPRC Shares") in connection with the merger
pursuant to the Merger Agreement and the terms of the Merger Agreement require
the Company to provide the Lancashires certain registration rights with respect
to the Initial DPRC Shares.
C. The Company may also issue to the Lancashires additional shares of the
common stock of the Company (the "Additional DPRC Shares") in connection with
the merger pursuant to the Merger Agreement and the terms of the Merger
Agreement require the Company to provide the Lancashires certain registration
rights with respect to the Additional DPRC Shares.
A G R E E M E N T
In consideration of the foregoing recitals and the mutual covenants and
conditions contained herein, the parties, intending to be legally bound, agree
as follows:
Section 1. Certain Definitions. In addition to the other terms defined
elsewhere in this Agreement, as used in this Agreement, the following terms
shall have the following respective meanings:
a. "ACT" means the Securities Act of 1933, as amended.
b. "COMMISSION" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Act.
c. "HOLDER" means the Lancashires and any person beneficially owning
Registerable Securities through permitted assignment thereof in accordance with
Section 9, below.
d. "REGISTERABLE SECURITIES" means the Initial DPRC Shares, the
Additional DPRC Shares and any shares of the Company's common stock issued as a
dividend or other distribution with respect to, or in exchange for or in
replacement of the Initial DPRC
<PAGE> 2
Shares and the Additional DPRC Shares, excluding any Registerable Securities
sold by a person in a transaction in which his rights under this Agreement are
not assigned; provided further that shares which would otherwise constitute
Registerable Securities shall cease to do so once they have been sold to the
public.
e. The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Act and the declaration or ordering of effectiveness of such
registration statement.
Section 2. Demand Registration. If the Company shall receive from any
Holder or Holders at any time after the first anniversary of the date of this
Agreement, a written request or requests that the Company effect a registration
with the Commission with respect to all or part of the Registrable Securities
owned by such Holder or Holders, the Company will:
a. promptly give written notice of the proposed registration to all
other Holders; and
b. subject to Section 3, below, and Section 8.5 of the Merger
Agreement, as soon as practicable, use its reasonable best efforts to effect
such registration as may be so requested and as would permit or facilitate the
sale and distribution of all or a portion of such Holder's Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any other Holder or Holders joining in such
request as are specified in a written request given 10 days after receipt of
such written notice from the Company. The Company may, if permitted by law,
effect any such registration on Form S-3 or any successor or similar short form
registration statement (or Form S-1 or any other available form if Form S-3 is
not available).
Section 3. Limitations on Registration. The Company shall not be required
to prepare and file a registration statement pursuant to Section 2, above, (a)
which would become effective within six months following the effective date of a
registration statement (other than a registration statement filed on Form S-8 or
any successor form) filed by the Company with the Commission pertaining to an
underwritten public offering of securities, (b) if the Company in good faith
gives written notice to the Holders of the Registerable Securities stating that
in the good faith judgment of a majority of the board of directors it would be
detrimental to the Company or its shareholders for a registration statement to
be filed in the near future, in which case the Company's obligation to use its
best efforts to file a registration statement shall be deferred for a period not
to exceed 135 days; provided, however, that the Company shall not obtain such a
deferral more than one time in any 12 month period, (c) if the Holders, together
with the holders of any other securities of the Company entitled to be included
in such registration, propose to sell Registrable Securities and other
securities of the Company (if any) at any aggregate price to the public of less
than $1 million, (d) if in any given 12-month period, the Company has effected a
registration pursuant to Section 2, above, at the request of a Holder, or (e)
which is effected more than three years after the date of this Agreement. If a
requested registration pursuant to Section 2, above, involves an underwritten
offering, and the managing underwriter shall advise the Company in writing that,
in its opinion, the number of securities
2
<PAGE> 3
requested to be included in such registration (including securities of the
Company which are not Registerable Securities) exceeds the maximum dollar
amount or number that can be sold in such offering without materially adversely
affecting the proposed offering price, the timing, the distribution method or
the probability of success of such offering (the "Maximum Number of Demand
Shares"), then the Company shall include in any such registration to the extent
of the Maximum Number of Demand Shares which the Company is so advised can be
sold in such offering (i) first, Registerable Securities requested to be
included in such registration by the Holder or Holders of Registerable
Securities pro rata among such Holders on the basis of the number of
Registerable Securities requested to be included by such Holders, and (ii)
second, to the extent the Maximum Number of Demand Shares has not been reached
under the foregoing clause (i), other securities of the Company proposed to be
included in such registration without exceeding the Maximum Number of Demand
Shares, in accordance with the priorities, if any, then existing among the
Company and the holders of such other securities.
Section 4. Incidental Registration. If, at any time and from time to time
during a period commencing on the first anniversary of the date of this
Agreement and ending on the third anniversary of the date of this Agreement, the
Company shall propose to register in a public offering any of its common stock
(whether for the Company's account or for the account of other shareholders) to
be offered for cash pursuant thereto (other than a registration statement (a) on
Form S-4 or Form S-8 (or any substitute or successor form that may be adopted by
the Commission), (b) filed in connection with any employee stock option or other
benefit plan, (c) for an exchange offer or offering of securities solely to the
Company's existing shareholders, or (d) for a dividend reinvestment plan), it
shall give written notice (the "Company's Notice") to all Holders of
Registerable Securities of its intention to do so at least 30 days prior to the
anticipated filing date. If any Holder of Registerable Securities desires to
dispose of all or part of such Holder's Registerable Securities, it may request
registration thereof in connection with the Company's registration by delivering
to the Company, within 10 days after receipt of the Company's Notice, written
notice of such request (the "Holder's Notice") stating the number of shares of
Registerable Securities to be included. The Company shall use its best efforts
to cause all shares specified in the Holder's Notices to be registered under the
Act so as to permit the sale or other disposition by such Holder or Holders of
the shares so registered, subject however, to the limitations set forth in
Section 5, below.
Section 5. Limitations on Incidental Registration. If the managing
underwriter or underwriters for registration under Section 4, above, advises the
Company and the Holders requesting inclusion in such registration in writing,
that the dollar amount or number of shares of Registrable Securities and other
shares of common stock or securities to be included in the offering exceeds the
maximum dollar amount or number that can be sold in such offering without
adversely affecting the proposed offering price, the timing, the distribution
method or the probability of success of such offering (the "Maximum Number of
Shares"), then the Company shall include in such registration:
a. if the registration is a primary offering for the Company, (i)
first, the shares of common stock or other securities that the Company proposes
to sell which can be sold without exceeding the Maximum Number of Shares; (ii)
second, to the extent the Maximum
3
<PAGE> 4
Number of Shares has not been reached under the foregoing clause (i), the
shares of common stock or other securities requested to be included in such
registration by other shareholders with registration rights granted prior to
the date hereof which can be sold without exceeding the Maximum Number of
Shares (allocated pro rata among such other shareholders, as nearly as
practicable, on the basis of the number of shares of common stock or other
securities requested to be included in such offering by such other
shareholders); and (iii) third, to the extent the Maximum Number of Shares has
not been reached under the foregoing clauses (i) and (ii), the Registrable
Securities and shares of common stock or other securities requested to be
included in such registration by the Holders and other shareholders with
registration rights which can be sold without exceeding the Maximum Number of
Shares (allocated pro rata among such Holders and other shareholders, as nearly
as practicable, on the basis of the number of shares of Registrable Securities
and common stock or other securities requested to be included in such offering
by the Holders and such other shareholders); and
b. if the registration is for a secondary offering for any of the
Company's securityholders, (i) first, if the registration was requested by other
shareholders with demand registration rights, then the shares of common stock or
other securities that such other shareholders have requested to be included in
such offering which can be sold without exceeding the Maximum Number of Shares;
(ii) second, to the extent the Maximum Number of Shares has not been reached
under the foregoing clause (i), the shares of common stock or other securities
requested to be included in such registration by other shareholders with
registration rights granted prior to the date hereof which can be sold without
exceeding the Maximum Number of Shares (allocated pro rata among such other
shareholders, as nearly as practicable, on the basis of the number of shares of
common stock or other securities requested to be included in such offering by
such other shareholders); and (iii) third, to the extent the Maximum Number of
Shares has not been reached under the foregoing clauses (i) and (ii), the
Registrable Securities and shares of common stock or other securities requested
to be included in such registration by the Holders and other shareholders with
registration rights which can be sold without exceeding the Maximum Number of
Shares (allocated pro rata among such Holders and other shareholders, as nearly
as practicable, on the basis of the number of shares of Registrable Securities
and common stock or other securities requested to be included in such offering
by the Holders and such other shareholders).
Section 6. Registration Procedures.
a. If and when the Company is required by the provisions of this
Agreement to use its best efforts to effect the registration of shares of
Registerable Securities, the Company shall:
(i) Prepare and file with the Commission a registration
statement with respect to such shares and use its best efforts to cause such
registration statement to become and remain effective for the periods provided
herein;
(ii) Prepare and file with the Commission such supplements to
such registration statement and the prospectuses used in connection therewith as
may be necessary
4
<PAGE> 5
to keep such registration statement effective and current for a reasonable
amount of time so that all of such securities can be disposed of in accordance
with the intended methods of disposition by the seller or sellers thereof set
forth in such registration statement;
(iii) Furnish to the Holders such reasonable number of copies
of the registration statement, preliminary prospectus, final prospectus and such
other documents as the Holders may reasonably request to facilitate the public
offering of the Registerable Securities;
(iv) Use its best efforts to register or qualify the shares
covered by such registration statement under such other securities or Blue Sky
or other applicable laws of such jurisdictions as the Holders shall reasonably
request; provided, however, the Company shall not be obligated to qualify to do
business in such jurisdiction or consent to general service of process in such
jurisdiction, or subject itself to taxation in any such jurisdiction;
(v) Notify counsel for the Holders, promptly after it shall
receive notice thereof, of the time when such registration statement has become
effective under the Act or a supplement to any prospectus forming a part of such
registration statement has been filed;
(vi) Notify counsel for the Holders promptly of any request by
the Commission for the amending or supplementing of such registration statement
or prospectus or for additional information;
(vii) Prepare and file with the Commission, promptly upon the
request of the Holders, any amendments or supplements to such registration
statement or prospectus which, in the reasonable opinion of counsel for the
Holders (and reasonably concurred in by counsel for the Company), is required
under the Act or the rules and regulations thereunder in connection with the
distribution of the Registrable Securities;
(viii) Prepare and promptly file with the Commission and
promptly notify counsel for the Holders of the filing of such amendment or
supplement to any such registration statement or prospectus as may be necessary
to correct any statements or omissions if, at the time when a prospectus
relating to the Registrable Securities is required to be delivered under the
Act, any event shall have occurred as the result of which any such prospectus or
any other prospectus as then in effect would include an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances in which they were made,
not misleading;
(ix) Advise counsel for the Holders, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order by
the Commission suspending the effectiveness of such registration statement under
the Act or the initiation or threatening of any proceeding for such purpose, and
promptly use its best efforts to prevent the issuance of any stop order or to
obtain its withdrawal if such stop order should be issued;
(x) Use its best efforts to cause all such Registrable
Securities to be listed on each securities exchange or over-the-counter market
on which similar securities
5
<PAGE> 6
issued by the Company are then listed and file all required listing
applications and pay all required fees in connection with such listings; and
(xi) Cooperate with Holders in effecting the transfer of any
shares sold pursuant to a registration effected hereunder.
Section 7. Expenses of Registration. Except as provided below, all of the
expenses incurred by the Company in effecting any registration requested
pursuant to Section 2, above, including, without limitation, all registration
and filing fees, printing expenses, expenses of compliance with Blue Sky laws
(including, without limitation, fees and disbursements of underwriters counsel
relating thereto), fees and disbursements of counsel for the Company, and
expenses of any audits incidental to or required by any such registration
("Registration Expenses") shall be borne by the Company; provided, however, that
the participating Holders shall reimburse the Company for up to $10,000 of such
Registration Expenses within 10 days after receipt of an invoice from the
Company describing such Registration Expenses in reasonable detail; and
provided, further, that if other shareholders with registration rights are
included in such registration, the Registration Expenses shall be allocated pro
rata among the participating Holders and each of such other shareholders of the
Company, as nearly as practicable, on the basis of the fair market value of
Registrable Securities, common stock and other securities of the Company
requested by the Holders and such other shareholders of the Company to be
included in such registration, but in no event shall the participating Holders'
share of the expenses exceed $10,000. Except as provided below, all
Registration Expenses incurred by the Company in effecting any registration
requested pursuant to Section 4, above, shall be borne by the Company. In
either event, notwithstanding anything in this Section 7 to the contrary, the
Company shall have no obligation to pay or otherwise bear (a) any underwriting
discounts or brokerage fees or commissions relating to the sale of Registerable
Securities by the Holders, or (b) any Registration Expenses if the payment of
such expenses by the Company is prohibited by the laws of a state in which such
offering is qualified and only to the extent so prohibited, or (c) any expenses
of any compliance with Blue Sky laws which pertains only to an individual
Holder, or (d) any fees and disbursements of counsel for the Holders.
Section 8. Indemnification.
(a) The Company will indemnify, hold harmless and defend each Holder,
its officers, directors, partners, legal counsel and accountants, and each
person who controls a Holder within the meaning of Section 15 of the Act,
against any and all expenses, claims, losses, damages and liabilities (or
actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, offering circular or other
document, or any amendment or supplement thereof, incident to any registration
or qualification of the Registrable Securities, or which arise out of or are
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading, or any
violation by the Company of any rule or regulation promulgated under the Act or
any state securities laws applicable to the Company and relating
6
<PAGE> 7
to action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse each such
indemnified party for any legal and any other expenses reasonably incurred by
them in connection with investigating, preparing or defending any such claim,
loss, damage, liability or action. The Company also shall indemnify any
underwriter of the Registrable Securities, their officers, directors, partners,
members and agents and each person who controls such underwriters on
substantially the same basis as that of the indemnification of the Holders
provided in this Section 8(a).
The indemnity agreement contained in this Section 8(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage or liability or any
action in respect thereof if such settlement is effected without the consent of
the Company, nor shall the Company be liable to any Holder or its officers,
directors, partners, members or agents in any such case for any loss, claim,
damage, liability or any action in respect thereof to the extent that it arises
solely from or is based solely upon and is in conformity with written
information relating to such Holder furnished expressly for use in connection
with such registration by such Holder or its agents, nor shall the Company be
liable to any Holder for any such loss, claim, damage or liability or any action
in respect thereof to the extent it arises solely from or is based solely upon
(i) any untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus relating to the
Registrable Securities delivered by such Holder after the Company had provided
written notice to such Holder that such registration statement or prospectus
contained such untrue statement or alleged untrue statement of a material fact,
(ii) any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
after the Company had provided written notice to such Holder that such
registration statement or prospectus contained such omission or alleged
omission, or (iii) the failure of such Holder to deliver any preliminary or
final prospectus, or any amendments or supplements thereto, required under
applicable securities laws, including the Act, to be so delivered, provided that
a sufficient number of copies thereof had been timely provided by the Company to
such Holder.
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, and each of its officers,
directors, legal counsel and accountants, and each person who controls the
Company within the meaning of Section 15 of the Act, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering circular or
other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Holder of any rule or regulation
promulgated under the Act or any state securities laws applicable to the Holder
and relating to action or inaction required by the Holder in connection with any
such registration, qualification or compliance, and will reimburse each such
indemnified person for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished
7
<PAGE> 8
to the Company by an instrument duly executed by or on behalf of such Holder
and stated to be specifically for use therein. Each Holder shall also
indemnify and hold harmless any underwriter of the Registrable Securities,
their officers, directors, partners, members and agents and each person who
controls such underwriters on substantially the same basis as that of the
indemnification of the Company provided in this Section 8(b).
(c) Each person to be indemnified pursuant to this Section 8 (the
"Indemnified Party") will, promptly after its receipt of written notice of the
commencement of any action against such Indemnified Party in respect of which
indemnity may be sought from an indemnifying person under this Section 8 (the
"Indemnifying Party") notify the Indemnifying Party in writing of the
commencement thereof, provided, however, that the failure of any person to give
notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Agreement except to the extent that such Indemnifying
Party is actually materially and adversely prejudiced by such failure to give
notice. If any such action shall be brought against any Indemnified Party and
it shall notify an Indemnifying Party of the commencement thereof, the
Indemnifying Party will be entitled to participate therein and, to the extent it
may desire, jointly with any other Indemnifying Party similarly notified, to
assume the defense thereof with counsel satisfactory to such Indemnified Party,
and after notice from the Indemnifying Party to such Indemnified Party of its
election so to assume the defense thereof, the Indemnifying Party will not be
liable to such Indemnified Party under this Section 8 for any legal or other
expenses subsequently incurred by such Indemnified Party in connection with the
defense thereof other than reasonable costs of investigation unless (a) the
Indemnified Party shall have employed counsel in an action in which the
Indemnified Party and Indemnifying Party are both defendants and there is a
conflict of interest between such parties that would prevent counsel from
adequately representing both parties, (b) the Indemnifying Party shall not have
employed counsel satisfactory within the exercise of reasonable judgment of the
Indemnified Party to represent the Indemnified Party within a reasonable time
after the notice of the commencement of the action, or (c) the Indemnifying
Party has authorized the employment of counsel for the Indemnified Party at the
expense of the Indemnifying Party. The undertaking contained in this Section
8(c) shall be in addition to any liabilities which the Indemnifying Party may
have pursuant to law.
(d) If the indemnification provided for in this Section 8 is held by
a court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage or expense referred to therein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
thereunder, shall contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, liability, claim, damage or expense in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and of the Indemnified Party on the other in connection
with the statements, actions or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
8
<PAGE> 9
Section 9. Transfer of Registration Rights. The rights to cause the
Company to register securities granted to a Holder under Sections 2 and 4,
above, may be transferred or assigned by such Holder to a transferee or assignee
in connection with any transfer or assignment of Registerable Securities in
compliance with Section 8.5 of the Merger Agreement, provided that: (a) such
transfer or assignment may otherwise be effected in accordance with applicable
securities laws, (b) prompt written notice of such transfer or assignment is
given to the Company, and (c) such transferee or assignee expressly agrees in
writing delivered to the Company to be bound by the provisions of this
Agreement.
Section 10. Standoff or Lock-Up Agreement. Each Holder of Registerable
Securities agrees in connection with any firmly underwritten public offering of
the Company's common stock that, upon request of the Company or the underwriters
managing any underwritten offering of the Company's securities, such Holder
shall not sell, make any short sale of, loan, grant any option for the purchase
of, or otherwise dispose of any Registerable Securities (other than those
included in the registration) without the prior written consent of the Company
or such underwriters, as the case may be, during the 14 days prior to, and
during the 120-day period beginning on, the effective date of the registration
statement relating to such offering (except as part of such registration
statement). In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registerable Securities until the
end of such period.
Section 12. Amendment. Any modification, amendment, or waiver of this
Agreement or any provision hereof shall be effective only if in writing and
executed by the Holders of at least a majority of the Registrable Securities and
the Company.
Section 13. Governing Law. This Agreement shall be governed in all
respects by the laws of the State of California without regard to its conflicts
of laws principles.
Section 14. Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, permitted assigns, heirs, executors and
administrators of the parties.
Section 15. Notices. All notices and other communications required or
permitted hereunder shall be made in accordance with the Merger Agreement.
Section 16. Severability. If any provision of this Agreement shall be
judicially determined to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions of this Agreement shall
not in any way be affected or impaired thereby.
Section 17. Entire Agreement. This Agreement constitutes the full and
entire understanding and agreement between the parties with regard to the
subject matter hereof.
Section 18. 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.
9
<PAGE> 10
Section 19. Termination of Registration Rights. The rights of any Holder
to request registration or inclusion in any registration pursuant to Section 2
or 4, above, shall terminate on the date that all Registrable Securities held by
such Holder may be sold under Commission Rule 144 during any 90-day period.
IN WITNESS WHEREOF, each of the parties has executed this Agreement as of
the date first set forth above.
THE "LANCASHIRES": THE "COMPANY":
DATA PROCESSING
RESOURCES CORPORATION,
/s/ CHRISTOPHER W. LANCASHIRE a California corporation
- -----------------------------
CHRISTOPHER W. LANCASHIRE
By: /s/ MICHAEL A. PIRAINO
/s/ ALICIA R. LANCASHIRE ------------------------------
- --------------------------- Its: Senior Vice President and
ALICIA R. LANCASHIRE -------------------------
CFO
-------------------------
10
<PAGE> 1
EXHIBIT 10.1
C. LANCASHIRE EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made effective
on April 29, 1997, by and between DPRC Acquisition Corp., a California
corporation ("Acquisition"), and Christopher W. Lancashire, an individual
("Employee"), with reference to the following:
A. Acquisition wishes to employ Employee, and Employee wishes
to be employed by Acquisition, as an employee of Acquisition, including the
position of Chief Executive Officer and President of Acquisition.
B. Acquisition and Employee now wish to memorialize their
agreement regarding the employment and compensation of Employee.
NOW, THEREFORE, in consideration for the promises and
obligations set forth below, Acquisition and Employee agree as follows:
1. EMPLOYMENT AND TERM.
--------------------
1.1 Acquisition agrees to employ, and Employee agrees to be
employed by Acquisition, on the terms and conditions described
below (the "Employment").
1.2 The term of this Agreement (the "Initial Term") shall commence
on the date hereof and continue until December 31, 1998 unless
sooner terminated pursuant to the terms hereof.
2. DUTIES.
-------
Employee agrees that during the Employment, Employee shall serve as an
employee of Acquisition and as Chief Executive Officer and President
of Acquisition at Acquisition's offices located at 801 North Brand
Boulevard, Suite 650, Glendale, California. Whereas Employee shall
ultimately be responsible to the Board of Directors of Acquisition,
Employee shall report directly to and be directed in his duties by the
Chief Executive Officer of Data Processing Resources Corporation, a
California corporation ("DPRC").
3. COMPENSATION.
-------------
3.1 As consideration for said performance of duties and adherence
to the covenants in this Agreement, Employee shall be entitled
to the compensation set forth on Exhibit "A" attached hereto
and incorporated herein by this reference (the
"Compensation").
3.2 Employee understands and acknowledges that the Compensation
will constitute the full and exclusive consideration to be
received by Employee for all services performed by Employee in
connection with Acquisition's employment of Employee, and for
the performance of all his promises and obligations under this
Agreement.
<PAGE> 2
3.3 Aside from the Compensation, Acquisition may adopt, or
continue in force, benefit plans for the benefit of its
employees or certain of its employees, which may include, but
not be limited to, group life insurance, medical insurance,
etc. Acquisition may terminate any or all such plans at any
time and may choose not to adopt any additional or replacement
plans. Employee's rights under any benefits plans now in force
or later adopted by Acquisition shall be governed solely by
the terms of such plans.
4. DUTY TO DEVOTE TIME AND AVOID CONFLICT OF INTEREST.
---------------------------------------------------
Employee agrees that during the Employment he shall devote his
full-time efforts to his duties as Chief Executive Officer and
President of Acquisition. During the Employment, Employee shall not,
directly or indirectly, engage or participate in any activities which
are in conflict with the best interests of Acquisition.
5. COMPLIANCE WITH RULES AND REGULATIONS.
--------------------------------------
Employee agrees to comply with Acquisition's current rules,
regulations and practices, including but not limited to those rules
concerning vacation and sick leave, as they may from time to time be
adopted or modified, so long as they are uniformly applied to all
employees.
6. TRADE SECRETS OF THE COMPANY.
-----------------------------
6.1 Employee acknowledges and understands that during the
Employment, Employee will have access to and will utilize and
review information which constitutes valuable, important and
confidential trade secrets, as that term is interpreted under
the Uniform Trade Secrets Act (California Civil Code Section
3426 et seq.) and/or confidential and proprietary material and
information of or relating to the business of Acquisition,
DPRC and their respective affiliates (collectively, the
"Company") necessary for the successful conduct of the
Company's business. This information includes, but is not
limited to: (a) The Company's listings of and data regarding
the Company's customer and clients (sometimes collectively
referred to in this Agreement as the "Clients") (past and
current); (b) the Company's information regarding potential
customers and clients; (c) data relating to the personnel,
supervisory structure and procedures of the Clients; (d)
specific computer technician staffing needs of the Clients;
(e) the identity, whereabouts, capabilities and availability
of contractors in the Company's database; (f) the Company's
bidding, billing and pricing practices; (g) the nature and
type of services rendered by the Company to the Clients; and
(h) other methodologies, computer programs, employee and
contractor resumes, employee databases, processes,
compilations of information, results of proposals, job notes,
reports, and records (all of which
2.
<PAGE> 3
information is sometimes referred to in this Agreement as the
"Secrets"). Employee understands further that the Secrets have
been and will be accumulated by Employee and other personnel
at the Company at a considerable expense to the Company
(including but not limited to compensation paid to the Company
personnel dealing with the Secrets and the Clients), and that
the Company has and will continue to expend its resources in
order to maintain actively and vigorously the confidentiality
of the Secrets, as such information is extremely valuable to
the Company, and well worth the expense of enforcement and
preservation of such confidentiality. Accordingly, Employee
agrees as follows:
(a) All of the Secrets shall be safeguarded and treated
as confidential by Employee.
(b) Any and all data, notes, letters, computer programs
and data, reports, telephone records and all other
written documentation relating to the business of the
Company (including but not limited to the Secrets)
that may be collected, compiled, written, reviewed or
conceived by Employee from or by reason of services
performed by Employee for the Company shall become
the absolute property of the Company, and Employee
shall not assert or establish a claim for any
statutory or common law right or any other possessory
or proprietary right with respect to any of the
above.
(c) Employee shall hold the Secrets in strictest
confidence, and shall not (i) disclose any Secrets to
any person, corporation, firm, or other entity,
either during the Employment or afterward, or (ii)
use any or all of the Secrets in Employee's
subsequent business or employment, without the prior
express written authorization of the Company.
(d) Employee shall not otherwise commit any act which
shall compromise the confidentiality of the Secrets,
including but not limited to making a copy of such
property (whether electronic, paper or otherwise)
without the prior express written authorization of
the Company.
7. CONFIDENTIAL INFORMATION OF CLIENTS.
------------------------------------
All ideas, concepts, information and written material disclosed to
Employee by the Company, or acquired from any of the Clients, and all
financial, accounting, statistical personnel, and business data and
plans of the Clients, are and shall remain the sole and exclusive
property and proprietary information of the Company, or said Client,
and are disclosed in confidence by the Company or permitted to be
acquired from the Clients in reliance on Employee's agreement to
maintain them in confidence and not to use or disclose them to any
other person except in furtherance of the Company's business.
3.
<PAGE> 4
Employee agrees to execute DPRC's standard confidentiality agreement
requested from each of its employees, at such time as he shall be
requested by the Company to do so.
8. RETURN OF INFORMATION.
----------------------
At the time of the termination of the Employment, Employee agrees to
deliver promptly to the Company all notes, books, electronic data
(regardless of storage media), correspondence and other written or
graphical records (including all copies thereof) in Employee's
possession or under Employee's control relating to any business, work,
the Clients or any other aspect of the Company, including not limited
to each original and all copies of all or any part thereof.
9. COOPERATION.
------------
Employee agrees that, both during the Employment and afterward, he
will give evidence and testimony at Acquisition's expense, and perform
all acts which are necessary to carry out and fulfill the purposes and
intents of this Agreement.
10. REMEDIES: INJUNCTIVE RELIEF.
----------------------------
In the event of a breach or threatened breach by Employee of any of
the provisions of this Agreement, Employee agrees that the Company, in
addition to and not in limitation of any other rights, remedies, or
damages available to the Company at law or in equity, shall be
entitled to a preliminary and a permanent injunction in order to
prevent or restrain any such breach by Employee or by Employee's
partners, agents, representatives, servants, employers, employees,
and/or any and all persons directly or indirectly acting for or with
Employee.
11. TERMINATION OF EMPLOYMENT.
--------------------------
11.1 Acquisition and Employee each acknowledge and understand that
the Employment is terminable by Acquisition with cause (as
defined below) without advance notice. For the purposes of
this Agreement, termination "with cause" shall mean (a)
Employee shall have been convicted of a violation of law
involving moral turpitude or a felony; (b) Employee shall have
intentionally embezzled any property belonging to the Company
or shall have willfully injured the Company or any of the
Company's tangible or intangible property (other than injuries
to such tangible or intangible property occurring in the
ordinary course of business); (c) Employee shall be engaged in
other willful misconduct or shall have been grossly negligent
in the performance of his duties or obligations hereunder,
which other willful misconduct or gross negligence shall have
materially and adversely affected the business or reputation
of the Company, (d) a material violation of
4.
<PAGE> 5
Section 6 or 7 of this Agreement, (e) a material violation of
Article 9 of the Agreement and Plan of Merger dated of even
date herewith (the "Merger Agreement"), by and among
Acquisition, DPRC, Employee and certain others, or (f)
Employee shall have breached any of the other material
provisions hereof, which breach shall not have been cured by
Employee within a period of 30 days after receipt by Employee
of written notice from Acquisition of such breach. Except as
otherwise agreed in writing or as otherwise provided by this
Agreement, upon termination of the Employment by Acquisition
for cause, Acquisition shall have no further obligation to
Employee under this Agreement by way of compensation or
otherwise, but Employee's duties under Sections 6 through 9,
inclusive, shall continue after said termination of
Employment.
11.2 Acquisition and Employee each acknowledge and understand that
the Employment is not terminable by Acquisition without cause
(see the definition of "with cause" in Paragraph 11.1 above).
In the event that Acquisition terminates the Employment
without cause prior to the termination of the Initial Term as
provided in Section 1.2, above, Acquisition shall (i) pay to
Employee the base salary of the Compensation and provide the
same health and life insurance benefits to which Employee was
entitled during the Employment, in each case (i.e., base
salary and benefits), until the earlier to occur of (a)
December 31, 1999, or (b) the date upon which Employee
violates Section 6 or 7, above, and (ii) cause the release of
all of the Escrowed Shares to the Shareholders (as such
capitalized terms are defined in that certain Escrow Agreement
dated of even date herewith, by and among DPRC, Acquisition,
Employee and certain others. For the purposes of this
Agreement, the term "without cause" shall mean any
circumstances by which this Agreement is terminated other than
(i) voluntary termination by Employee (other than as a result
of Employee being required to move from the greater Los
Angeles area, or Acquisition's breach of any material
provision of this Agreement or the Merger Agreement which is
not cured by Acquisition within 10 business days from the date
of Employee's notice of such breach), or (ii) termination by
DPRC "with cause", as defined in Section 11.1, above. By way
of clarification and not limitation, if the Employment shall
cease by reason of (1) the death of Employee, or (2)
Employee's permanent disability (as defined below), such
termination of the Employment shall be deemed to be made by
DPRC without cause except that in such circumstances
Acquisition shall have no obligation hereunder to cause an
early release of the Escrowed Shares to the Shareholders. For
the purposes of this Agreement, Employee shall be deemed
disabled in the event that, by reason of sickness, physical or
mental impairment or injury, Employee's ability to perform his
duties under this Agreement is impaired more than twenty-five
percent (25%) for a period of six (6) consecutive months or
for nine (9) months in any twelve (12) month period, such
disability to be determined independently by a physician of
Employee's choosing and by a physician of Acquisition's
choosing. If such
5.
<PAGE> 6
two (2) chosen physicians are unable to agree upon whether
Employee shall be disabled, as defined above, they shall agree
upon a third physician, whose conclusion on such matter shall
be final.
11.3 The payments contemplated by this Section 11 shall constitute
the exclusive and sole remedy for any termination of
Employee's employment by Acquisition (whether pursuant to, or
in violation of, the terms of this Agreement), and Employee
covenants not to assert or pursue any remedies, other than an
action to enforce the payments due to Employee under this
Agreement, at law or in equity, with respect to any
termination of employment.
11.4 Acquisition and Employee each acknowledge and understand that
the Employment is terminable by Employee by giving Acquisition
ninety (90) days' advance written notice. Upon Employee's
voluntary termination of the Employment, except as provided in
Section 11.2, above, Acquisition shall have no further
obligation to Employee under this Agreement by way of
compensation or otherwise (except for the obligation to pay
any of the Compensation to which Employee may be entitled at
the time of such termination), but Employee's duties under
Sections 6 through 9, inclusive, shall continue after said
termination of the Employment.
11.5 No policies or procedures Acquisition or benefits provided by
Acquisition, whether oral or written express or implied,
formal or informal, are intended, nor shall they be construed
to limit the right or ability of Acquisition or Employee to
terminate the Employment as set forth above. Except as
otherwise agreed in writing or as otherwise provided by this
Agreement, upon termination of Employment neither Acquisition
nor Employee shall have any further obligation to each other
way by way of compensation or otherwise.
12. MISCELLANEOUS PROVISIONS.
-------------------------
12.1 In the event that any of the provisions of this Agreement
shall be held to be invalid or unenforceable, then all other
provisions shall nevertheless continue to be valid and
enforceable as though the invalid or unenforceable parts had
not been included in this Agreement.
12.2 This Agreement shall be binding upon the heirs, executors,
administrators, and successors-in-interest of the parties
hereto.
12.3 This Agreement shall be construed and enforced according to
the laws of the State of California, exclusive of its choice
of law rules.
6.
<PAGE> 7
12.4 This Agreement supersedes all previous correspondence,
promises, representations, and agreements, if any, either
written or oral. No provision of this Agreement may be
modified except by a writing signed by both Acquisition (after
approval by its board of directors) and Employee.
12.5 Any Action arising out of or in connection with this Agreement
shall be resolved in accordance with Section 11.3 of the
Merger Agreement.
13. ACKNOWLEDGMENT BY EMPLOYEE.
---------------------------
Employee has carefully read and considered the provisions of this
Agreement and agrees that all of the above-stated restrictions,
obligations and promises are fair and reasonable and reasonably
required for the protection of the interests of Acquisition. Employee
further acknowledges that the goodwill and value of Acquisition is
enhanced by these provisions and that said enhancement is desired by
Employee. Finally, Employee indicates his acceptance of this Agreement
by signing and returning the enclosed copy of this Agreement where
indicated below.
"ACQUISITION" "EMPLOYEE"
DPRC ACQUISITION CORP.,
a California corporation
By: /s/ David M. Connell /s/ Christopher W. Lancashire
-------------------- -----------------------------
David M. Connell CHRISTOPHER W. LANCASHIRE
President
Dated: April 29, 1997 Dated: April 29, 1997
7.
<PAGE> 8
EXHIBIT A
Compensation of Christopher W. Lancashire
-----------------------------------------
The following summarizes the compensation to which Employee shall be
entitled under the foregoing terms of this Employment Agreement.
<TABLE>
<S> <C> <C>
1. BASE SALARY: Employee's base annual salary during the Term shall be
----------- $140,000 per year, paid in at least bi-weekly installments.
2. VACATION: During the Employment, Employee shall be entitled to take
-------- four (4) weeks of paid vacation time per calendar year of
Acquisition (plus such other time as may be permitted by
the Board); provided, however, that any such vacation time,
if not used in a calendar year of Acquisition, shall expire on
December 31 of such calendar year, except that not more
than one week of such unused vacation shall remain
available thereafter but shall expire if not used by March 31
of the following calendar year.
3. OTHER BENEFITS: Employee shall be entitled to participate in and receive
-------------- Benefits under all profit-sharing plans, pension plans, group
medical plans and other benefit plans for the payment of
additional compensation or benefits to employees of
Acquisition which Acquisition at any time maintains for
executive employees.
4. BUSINESS
EXPENDITURES: Employee is authorized to incur reasonable expenses for
------------ promoting and conducting the business of Acquisition,
including but not limited to expenditures for entertainment
and travel. Acquisition shall reimburse Employee monthly
for all such business expenses upon presentation of
reasonable documentation establishing the amount, date,
place and essential character of the expenditures.
5. OTHER BENEFITS: Employee shall be entitled to receive, under DPRC's 1994
-------------- Stock Option Plan, as amended (the "Plan"), options to
purchase a number of shares of the Common Stock of
DPRC (to be determined in accordance with Section 8.8 of
the Agreement and Plan of Merger dated April 29, 1997) at
a purchase price equal to the fair market value of such
shares as of the date of grant (as determined by the Plan).
These options shall, to the maximum extent permitted by
law, constitute stock options within the meaning of Section
422 of the Internal Revenue Code.
</TABLE>
Exhibit A
Page 1 of 1
<PAGE> 1
MICHAEL A. PIRAINO
CHIEF FINANCIAL OFFICER
(714)752-9111, EXT. 146
DATA PROCESSING RESOURCES CORPORATION ACQUIRES
COMPUTEC INTERNATIONAL STRATEGIC RESOURCES, INC.
FOR $19.6 MILLION IN CASH, 679,000 SHARES OF STOCK
AND A TWO-YEAR EARNOUT
COMPUTEC OPERATES FOUR OFFICES, INCLUDING THREE
INTERNATIONAL RECRUITING FACILITIES
NEWPORT BEACH, CALIFORNIA, APRIL 30, 1997 - Data Processing Resources
Corporation (Nasdaq:DPRC) today announced that it has acquired by merger
Computec International Strategic Resources, Inc. ("Computec").
Under the terms of the definitive merger agreement, the purchase price
consisted of $19.6 million in cash and approximately 679,000 shares of
restricted DPRC common stock plus an earnout contingent upon Computec's earnings
before interest and taxes through December 31, 1998.
Computec, which was founded in 1988 by Christopher and Alicia
Lancashire, maintains its corporate headquarters in Glendale, California. In
addition, Computec operates recruiting offices in London and Southport, England
and Sydney, Australia. Computec's information technology staffing (IT) business
specializes in the SAP and Oracle Financial platforms. Computec's revenues for
the twelve months ended December 31, 1996 were approximately $19.3 million. The
business currently employs approximately 110 hourly and salaried consultants,
the majority of whom have been recruited internationally and are on assignment
in the United States.
Commenting on the acquisition, David M. Connell, President and Chief
Operating Officer, stated, "This acquisition clearly communicates the Company's
commitment to broaden its presence as a national player in the IT staffing
industry. Computec's fast growing SAP, Oracle Financial and digital cellular
network implementation expertise serves to enhance our strategy of introducing
higher margin, value-added IT services and solutions. With highly-skilled
-more-
<PAGE> 2
Data Processing Resources Corporation
April 30, 1997
Page **2**
consultants on assignment in over 30 states, Computec has excelled in supporting
re-engineering and migration programs undertaken by their diverse group of
Fortune 500 clients. The Company's unique international recruiting channel, when
combined with our recently formed affiliation with select Pacific Rim recruiting
organizations, offers DPRC a strong competitive advantage in addressing the
growing shortage of IT professionals here in the United States."
Mr. Connell went on to state, "Computec will operate as a separate
subsidiary, maintaining its entrepreneurial spirit and talented management team
headed by Christopher Lancashire, its Chief Executive Officer."
Mr. Lancashire stated, "We at Computec feel that there is a great
strategic fit between our two organizations. Our greatest strength as an
organization is recruiting highly skilled IT professionals from around the
world. DPRC's greatest need is a steady supply of IT talent for their customers.
We complement each other's businesses very well."
Data Processing Resources Corporation provides information technology
staffing services through a network of twelve branch locations and three
international recruiting offices to a diverse group of corporate clients through
a database of highly qualified technical consultants. Additional information on
DPRC is now available via the Internet's World Wide Web at http://www.dprc.com.
For more investor information via facsimile, please call 1-800-PRO-INFO and
enter client code 294.
###
