<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
Commission File No. 0-23635
CONDOR TECHNOLOGY SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 54-1814931
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
170 Jennifer Road, Suite 325, Annapolis, Maryland 21401
(Address of principal executive offices) (Zip Code)
(410) 266-8700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
- --
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Outstanding as of
Class November 13, 1998
<S> <C> <C>
Common Stock , $.01 par value 11,271,430
</TABLE>
<PAGE>
CONDOR TECHNOLOGY SOLUTIONS, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Historical Consolidated Statements of Operations.........1
Pro Forma Combined Statements of Operations..............2
Historical Consolidated and Pro Forma Combined
Balance Sheets..........................................3
Historical Consolidated Condensed Statements of
Cash Flows..............................................4
Notes to Historical Consolidated and Pro Forma
Combined Financial Statements........................5-13
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................14-20
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK....................................21
Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.......................................22
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS ...........22-23
Item 3. DEFAULTS UPON SENIOR SECURITIES.........................23
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITYHOLDERS........................................23
Item 5. OTHER INFORMATION.......................................23
Item 6. EXHIBITS AND REPORTS ON FORM 8-K........................24
SIGNATURES................................................................25
EXHIBIT INDEX.............................................................26
</TABLE>
<PAGE>
PART I-FINANCIAL INFORMATION
ITEM 1-FINANCIAL STATEMENTS
CONDOR TECHNOLOGY SOLUTIONS, INC.
HISTORICAL CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical Historical
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- --------------------
(unaudited) (unaudited)
1997 1998 1997 1998
<S> <C> <C> <C> <C>
IT service revenues $ -- $ 27,345 $ -- $ 59,369
Hardware procurement revenues -- 17,662 -- 54,989
-------- -------- --------- --------
Total revenues -- 45,007 -- 114,358
-------- -------- --------- --------
Cost of IT services -- 13,109 -- 28,680
Cost of hardware procurement -- 15,771 -- 49,814
-------- -------- --------- --------
Total cost of revenues -- 28,880 -- 78,494
-------- -------- --------- --------
Gross profit -- 16,127 -- 35,864
Selling, general and admininistrative expenses 731 9,272 831 22,124
Depreciation and amortization -- 1,310 -- 3,125
In process research and development expense -- -- -- 5,000
-------- -------- --------- --------
Income (loss) from operations (731) 5,545 (831) 5,615
Interest and other income (expense), net -- (36) -- 560
-------- -------- --------- --------
Income (loss) before income taxes (731) 5,509 (831) 6,175
Provision for taxes -- 2,507 -- 4,152
-------- -------- --------- --------
Net income (loss) $ (731) $ 3,002 $ (831) $ 2,023
-------- -------- --------- --------
-------- -------- --------- --------
Net income (loss) per basic share $ (0.44) $ 0.27 $ (0.51) $ 0.21
-------- -------- --------- --------
-------- -------- --------- --------
Net income (loss) per diluted share $ (0.44) $ 0.26 $ (0.51) $ 0.20
-------- -------- --------- --------
-------- -------- --------- --------
Basic shares outstanding 1,680 11,198 1,619 9,779
-------- -------- --------- --------
-------- -------- --------- --------
Diluted shares outstanding 1,680 11,596 1,619 9,950
-------- -------- --------- --------
-------- -------- --------- --------
</TABLE>
See notes to historical consolidated financial statements.
1
<PAGE>
CONDOR TECHNOLOGY SOLUTIONS, INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
(unaudited) (unaudited)
1997 1997 1998
<S> <C> <C> <C>
IT service revenues $ 13,075 $ 37,860 $ 63,644
Hardware procurement revenues 24,904 67,863 65,775
-------- -------- --------
Total revenues 37,979 105,723 129,419
-------- -------- --------
Cost of IT services 5,865 18,364 30,531
Cost of hardware procurement 22,634 61,787 59,642
-------- -------- --------
Total cost of revenues 28,499 80,151 90,173
-------- -------- --------
Gross profit 9,480 25,572 39,246
Selling, general and admininistrative expenses 5,785 15,192 24,269
Depreciation and amortization 795 2,461 3,439
-------- -------- --------
Income from operations 2,900 7,919 11,538
Interest and other income, net 290 631 689
-------- -------- --------
Income before income taxes 3,190 8,550 12,227
Provision for taxes 1,497 4,012 5,572
-------- -------- --------
Net Income $ 1,693 $ 4,538 $ 6,655
-------- -------- --------
-------- -------- --------
Net income per basic share $ 0.20 $ 0.54 $ 0.60
-------- -------- --------
-------- -------- --------
Net income per diluted share $ 0.20 $ 0.54 $ 0.59
-------- -------- --------
-------- -------- --------
Basic shares outstanding 8,471 8,411 11,051
-------- -------- --------
-------- -------- --------
Diluted shares outstanding 8,471 8,411 11,222
-------- -------- --------
-------- -------- --------
</TABLE>
See notes to pro forma combined financial statements.
2
<PAGE>
CONDOR TECHNOLOGY SOLUTIONS, INC.
HISTORICAL CONSOLIDATED AND PRO FORMA COMBINED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
Pro Forma Historical
December 31, December 31, September 30,
1997 1997 1998
----------- ------------ -------------
(unaudited) (unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 35,137 $ 26 $ 6,885
Marketable securities 1,266 -- 167
Accounts receivable, net 31,206 -- 34,809
Inventory, net 1,660 -- 481
Prepaids and other current assets 1,996 -- 2,415
Deferred offering costs -- 4,900 --
--------- --------- ---------
Total current assets 71,265 4,926 44,757
PROPERTY AND EQUIPMENT, NET 1,941 -- 3,637
GOODWILL AND OTHER INTANGIBLES, NET 56,558 -- 89,619
OTHER ASSETS 440 -- 1,326
--------- --------- ---------
TOTAL ASSETS $ 130,204 $ 4,926 $ 139,339
--------- --------- ---------
--------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 17,523 $ -- $ 16,257
Accrued expenses and other current liabilities 8,172 2,689 11,566
Amounts due to stockholder -- 2,492 --
Deferred revenue 4,995 -- 6,054
Current portion of long-term obligations 1,248 -- 444
--------- --------- ---------
Total current liabilities 31,938 5,181 34,321
LONG-TERM DEBT 81 -- 410
OTHER LONG-TERM OBLIGATIONS 1,769 -- 2,980
--------- --------- ---------
Total liabilities 33,788 5,181 37,711
--------- --------- ---------
COMMITMENTS AND CONTINGENCIES -- -- --
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; authorized 49,000,000
shares; issued and outstanding, 1,892,307 shares at
December 31, 1997 and 11,198,908
shares at September 30, 1998 110 19 112
Additional paid-in capital 99,053 2,441 102,427
Accumulated deficit (2,715) (2,715) (682)
Cumulative translation adjustment (32) -- (35)
Treasury stock, at cost (13,178 shares at September 30, 1998) -- -- (194)
--------- --------- ---------
Total stockholders' equity 96,416 (255) 101,628
--------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 130,204 $ 4,926 $ 139,339
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to historical consolidated and pro forma
combined financial statements.
3
<PAGE>
CONDOR TECHNOLOGY SOLUTION, INC.
HISTORICAL CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
( in thousands )
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1998
------- -------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (831) $ 2,023
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
In process research and development - 5,000
Issuance of stock for services 815 -
Depreciation and amortization - 3,125
Deferred income taxes - (992)
Changes in assets and liabilities - (4,112)
------ ------
Net cash (used in) provided by operating activities (16) 5,044
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment - (2,026)
Sale of short term investments, net - 1,046
Payment for technology license - (1,550)
Acquisitions, net of cash acquired - (65,729)
Other - (487)
------ ------
Net cash used in investing activities - (68,746)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt - (1,723)
Proceeds from initial public offering, net of costs (974) 72,926
Proceeds from issuance of stock 150 -
Advances from stockholder 853 -
Purchase of treasury shares - (194)
Other - (445)
------ ------
Net cash provided by financing activities 29 70,564
------ ------
EFFECT OF EXCHANGE RATE CHANGES - (3)
NET INCREASE IN CASH AND CASH EQUIVALENTS 13 6,859
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD - 26
------ ------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 13 $ 6,885
------ ------
------ ------
</TABLE>
See notes to historical consolidated financial statements.
4
<PAGE>
CONDOR TECHNOLOGY SOLUTIONS, INC.
NOTES TO HISTORICAL CONSOLIDATED AND PRO FORMA COMBINED
FINANCIAL STATEMENTS
(1) Basis of Presentation
Condor Technology Solutions, Inc., a Delaware corporation ("Condor" or the
"Company"), was founded in August 1996 to create a leading single-source
Information Technology ("IT") service company to provide strategic IT
business solutions to middle market organizations including autonomous
divisions of Fortune 1000 companies. In order to become a single-source
provider of a wide range of IT services and solutions, Condor entered into
agreements (the "Mergers") to acquire all of the common stock of eight
established IT service providers (the "Founding Companies") and
concurrently completed an initial public offering (the "Offering") of its
common stock (the "Common Stock"). On February 5, 1998 and February 10,
1998, respectively, the Offering and the Mergers were completed. Subsequent
to that period the Company has acquired the common stock of four additional
IT service providers, as described in Note 4, "Acquisitions" and Note 13,
"Subsequent Events". The second and third quarter 1998 acquisitions are
reflected as of their acquisition dates, as described in Note 4,
"Acquisitions". The Founding Companies along with the newly acquired
companies are referred to herein as Operating Companies.
For financial statement purposes, Condor has been identified as the
accounting acquiror. Accordingly, the historical financial statements as of
December 31, 1997 include the results of Condor prior to the Offering and
the Mergers. The Mergers and subsequent acquisitions were accounted for
using the purchase method of accounting.
The unaudited pro forma financial information for the three months ended
September 30, 1997 and the nine months ended September 30, 1997 and 1998
includes the results of Condor combined with the Founding Companies as if
the Mergers of the Founding Companies had occurred on January 1, 1997. The
pro forma presentation and discussion should be read in conjunction with
the Unaudited Pro Forma Combined Financial Statements and related Notes
thereto appearing in "Item 8. Financial Statements and Supplementary Data"
of the Company's Annual Report on Form 10-K for the year ended December 31,
1997.
The following tables summarize unaudited adjustments to the pro forma
combined statements of operations:
For the three months ended September 30, 1997:
<TABLE>
<CAPTION>
Total
Pro Forma
(A) (B) (C) (D) (E) Adjustments
--------- ---------- --------- ---------- --------- ---------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Selling, general and (490) - - - (692) (1,182)
administrative
Depreciation and amortization - 454 125 - - 579
--------- ---------- --------- ---------- --------- ---------------
Income (loss) from operations 490 (454) (125) - 692 603
Interest and other expense - - - - - -
--------- ---------- --------- ---------- --------- ---------------
Income (loss) before income 490 (454) (125) - 692 603
taxes
Provision for income taxes - - - 87 - 87
--------- ---------- --------- ---------- ---------- --------------
Net income (loss) 490 (454) (125) (87) 692 516
--------- ---------- --------- ---------- ---------- --------------
--------- ---------- --------- ---------- ---------- --------------
</TABLE>
5
<PAGE>
For the nine months ended September 30, 1997:
<TABLE>
<CAPTION>
Total
Pro Forma
(A) (B) (C) (D) (E) Adjustments
----------- ----------- ------------ ----------- ----------- ---------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Selling, general and (2,399) - - - (692) (3,091)
administrative
Depreciation and - 1,362 375 - - 1,737
amortization
----------- ----------- ------------ ----------- ----------- ---------------
Income (loss) from 2,399 (1,362) (375) - 692 1,354
operations
Interest and other expense - - - - - -
----------- ----------- ------------ ----------- ----------- ---------------
Income (loss) before 2,399 (1,362) (375) - 692 1,354
income taxes
Provision for income taxes - - - 1,284 - 1,284
----------- ----------- ------------ ----------- ----------- ---------------
Net income (loss) 2,399 (1,362) (375) (1,284) 692 70
----------- ----------- ------------ ----------- ----------- ---------------
----------- ----------- ------------ ----------- ----------- ---------------
</TABLE>
For the nine months ended September 30, 1998:
<TABLE>
<CAPTION>
Total
Pro Forma
(A) (B) (C) (D) (F) (G) Adjustments
----------- ----------- ----------- ----------- ---------- ---------- --------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Selling, general and (4,047) - - - - - (4,047)
administrative
Depreciation and amortization - 151 42 - - - 193
In process research and - - - - (5,000) - (5,000)
development
----------- ----------- ----------- ----------- ---------- ---------- --------------
Income (loss) from operations 4,047 (151) (42) - 5,000 - 8,854
Interest and other expense 12 - - - - - 12
----------- ----------- ----------- ----------- ---------- ---------- --------------
Income (loss) before income 4,059 (151) (42) - 5,000 - 8,866
taxes
Provision for income taxes - - - 301 - 1,032 1,333
----------- ----------- ----------- ----------- ---------- ---------- --------------
Net income (loss) 4,059 (151) (42) (301) 5,000 (1,032) 7,533
----------- ----------- ----------- ----------- ---------- ---------- --------------
----------- ----------- ----------- ----------- ---------- ---------- --------------
</TABLE>
(A) Reflects the reductions in salaries, bonuses and benefits to the
stockholders and managers of the Founding Companies to which they
have agreed prospectively. On a prospective basis, bonuses will
only be paid if earnings increase to a level well in excess of
1997 pro forma levels.
(B) Reflects the amortization of goodwill to be recorded as a result
of these Mergers over a period of seven- to 35-years. These
amortization periods were determined based on an analysis of the
characteristics of the individual Founding Companies.
(C) Reflects the amortization of internally developed software
acquired as a result of these Mergers over a five-year estimated
life.
(D) Reflects (i) the incremental provision for federal and state
income taxes assuming all entities were subject to federal and
state income taxes; (ii) federal and state income taxes relating
to the other statements of operations' adjustments; (iii) income
taxes on S corporation income; and (iv) that the majority of
intangible amortization is not tax deductible.
(E) Reflects the reduction in compensation expense related to the
non-recurring, non cash compensation charge of $692,000 recorded
by Condor in the third quarter of 1997 related to common stock
issued to management of and consultants to the Company. The
issuances of common stock were made in contemplation of the
Mergers and the offering, and no future issuances of this nature
are anticipated.
(F) Reflects the elimination of a $5,000,000 non-recurring charge for
purchased research and development related to the purchase of one
of the Founding Companies.
(G) Reflects the elimination of a $1,032,000 tax benefit related to
the reduction of a deferred tax valuation allowance that had been
recorded prior to the Mergers and the Offering.
6
<PAGE>
The pro forma financial information may not be comparable to and may not be
indicative of the Company's post-Merger results of operations because the
Founding Companies were not under common control or management and had
different tax and capital structures during the periods presented.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial reporting and Securities and Exchange Commission
regulations. Certain information and footnote disclosures normally included
in the financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations. In the opinion of management, the financial statements
reflect all adjustments (of normal and recurring nature) which are
necessary to present fairly the financial position, results of operations
and cash flows for the interim periods. The results for the three and nine
months ended September 30, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998.
The financial statements should be read in conjunction with the Company's
audited consolidated financial statements included in the Company's most
recently filed Form 10-K.
(2) Summary of Significant Accounting Policies
For a description of the Company's accounting policies, refer to the Notes
to the Financial Statements of the Company and each of the Founding
Companies included in the Company's most recently filed Form 10-K. The
following additions to the accounting policies of the Company during the
periods presented are:
Revenue Recognition
The Company generates revenue from IT service and hardware procurement. IT
service revenues relate to strategic planning and management consulting;
strategic marketing communications; development, integration and
installation of IT systems; contract staffing and recruiting; software
licensing fees; training and continuing education; call center and
help-desk; and desktop systems maintenance and support. The Company
recognizes IT service revenues using formulas based on time and materials,
whereby revenues are recognized as costs are incurred at agreed-upon
billing rates. In certain instances, the Company undertakes projects on a
fixed-price basis, whereby revenues are recognized ratably over the term of
the contract. Revenues from license fees are generated from sales to both
end-users and resellers and are recognized when a non-cancelable license
agreement has been signed, the product has been delivered, collection is
probable and all significant obligations relating to the license have been
satisfied. There are no significant post-sales support obligations related
to the Company's license fees.
Hardware procurement revenues relate to the resale of desktop and mainframe
hardware. Revenue for procurement of computer hardware is recognized upon
shipment or acceptance of the equipment.
Cost of IT service revenues includes the provision of services and material
directly related to the revenues, subcontracted labor and other outside
services, other direct costs, and an allocation of certain indirect costs.
Cost of hardware procurement revenues includes the costs of acquiring the
hardware resold to clients.
Marketable Securities
Management determines the appropriate classification of its investments in
marketable securities at the time of purchase and reevaluates such
determination at each balance sheet date. The Company has considered all
marketable securities as available for sale and has recorded them at fair
value, with unrealized gains and losses, net of tax, reported as a separate
component of shareholders' equity. Net realized gains and losses are
determined on a specific identification cost basis.
7
<PAGE>
Reclassifications
Certain prior period amounts have been reclassified to conform with the
current period presentation.
(3) Capital Stock
On February 5, 1998, the Company sold 5,900,000 shares of Common Stock to
the public at $13.00 per share ("the Offering"). The net proceeds to the
Company from the Offering (after deducting underwriting commissions) were
$71.3 million. Of this amount, $47.1 million was used to pay the cash
portion of the purchase prices of the Founding Companies.
In connection with the Offering, the Company granted to the underwriters an
option to purchase an additional 885,000 shares at $13.00 per share. On
March 1, 1998, the underwriters exercised this option. The net proceeds to
the Company from this sale of shares was $10.7 million (after deducting
underwriting commissions).
Effective June 4, 1998, the Company registered an additional 5,000,000
shares of common stock with the Securities and Exchange Commission, which
may be offered and issued from time to time in connection with the merger
with or acquisition by the Company of other businesses or assets.
Between May and November 1998 the Company issued 9,600 unregistered shares
and 290,008 registered shares for the purchase of three subsidiaries as
described in Note 4, "Acquisitions" and Note 13, "Subsequent Events".
Effective June 22, 1998, the Company registered an additional 1,649,190
shares of common stock with the Securities and Exchange Commission,
reserved for issuance to eligible employees of the Company pursuant to the
Company's 1997 Long-Term Incentive Plan.
Effective September 29, 1998, the Company registered an additional 325,000
shares of common stock with Securities and Exchange Commission, reserved
for issuance to eligible employees of the Company pursuant to the Company's
Employee Stock Purchase Plan as described in Note 12, "Employee Stock
Purchase Plan".
(4) Acquisitions
On May 5, 1998, the Company acquired all of the outstanding common stock of
Decision Support Technology, Inc., ("DST") a Boston area consulting firm
focusing on decision support systems and data-warehousing applications, for
an initial purchase price of $1.0 million in cash and 9,600 shares of
common stock. In addition, the Company paid the existing bank debt of
$340,335. The Company has accounted for this transaction as a purchase
business combination. The excess of purchase price over the fair values of
the net assets acquired has been recorded as goodwill, which is being
amortized on a straight-line basis over 35 years.
On June 30, 1998, the Company acquired all of the outstanding common stock
of Louden Associates, Inc., ("Louden") a Baltimore based management
consulting firm, for an initial purchase price of $2.0 million in cash and
217,486 shares of common stock. Subsequent to September 30, 1998, the
Company also paid an additional purchase price of $578,706 based on
Louden's closing working capital. The Company has accounted for this
transaction as a purchase business combination. The excess of purchase
price over the fair values of the net assets acquired has been recorded as
goodwill, which is being amortized on a straight-line basis over 35 years.
On July 17, 1998, the Company acquired all of the outstanding common stock
of LINC Systems Corporation, ("LINC") an IT Services provider specializing
in client/server, Internet, and relational database technologies located in
Bloomfield, Connecticut, for an initial purchase price of $22.0 million in
cash. In addition, the Company paid the existing bank debt of $16,733. The
purchase price is
8
<PAGE>
subject to adjustment based on LINC's closing net worth to be determined
subsequent to the closing. The Company has accounted for this transaction
as a purchase business combination. The excess of the fair value over net
assets acquired has been recorded as goodwill and is being amortized over
35 years.
The goodwill recorded in the DST, Louden and LINC acquisitions is based on
estimates and may be adjusted as additional information becomes available.
The agreements with DST and Louden also contain additional payments
contingent on the future earnings performance of the individual companies.
Any additional payments made when the contingency is resolved will be
accounted for as goodwill and will be amortized over the remaining
estimated life of such goodwill.
The results of operations of DST, Louden and LINC have been reflected in
the financial statements as of their respective acquisition dates as
discussed above. The following table reflects unaudited pro forma combined
results of operations of the Founding Companies and DST, Louden and LINC on
the basis that the acquisitions of all of the Operating Companies had taken
place at the beginning of the fiscal year for each of the periods
presented:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1998 1997
----------------- ------------------
(in thousands, except per share amounts)
<S> <C> <C>
Revenues $ 140,555 $ 118,238
Net Income 7,430 5,382
Net Income per basic share $ 0.66 $ 0.62
Net Income per diluted share $ 0.65 $ 0.62
</TABLE>
The pro forma amounts reflect the results of operations for all of the
Operating Companies as well as the following purchase accounting
adjustments for the periods presented: reductions in salaries, bonuses and
benefits to the stockholders of the Operating Companies to which they have
agreed prospectively, reductions in profit sharing distributions to
stockholders of one of the Operating Companies to which they have agreed
prospectively, elimination of revenues and cost of revenues on transactions
between Operating Companies occurring prior to the acquisition by the
Company, amortization of goodwill recorded as result of these acquisitions,
income taxes on S-corporation income, and the estimated income tax effect
on the pro forma adjustments.
The unaudited pro forma combined results of operations may not be
comparable to and may not be indicative of the actual results that would
have occurred had the acquisitions been consummated at the beginning of
1997 or at the beginning of 1998 or of future operations of the combined
companies because the companies were not under common control or management
and had different tax and capital structures during the periods presented.
Subsequent to September 30, 1998, the Company acquired all of the common
stock of PowerCrew, Inc., as described further in Note 13, "Subsequent
Events".
(5) Earnings Per Share
Historical earnings per share has been calculated and presented in
accordance with Statement of Financial Accounting Standards ("SFAS") No.
128 "Earnings Per Share", which requires the Company to compute and present
basic and diluted earnings per share. Dilutive securities are excluded from
the computation in periods which they have an anti-dilutive effect.
Net income available to common stockholders and common equivalent
stockholders is equal to net income for all periods presented.
9
<PAGE>
The following tables represent reconciliations between the weighted average
common stock outstanding denominator used in basic EPS and the weighted
average common and common equivalent shares outstanding denominator used in
diluted EPS for each of the periods presented:
<TABLE>
<CAPTION>
Historical Historical
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------------- --------------------------
1997 1998 1997 1998
------------ ----------- ----------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Weighted average common stock
outstanding 1,680 11,198 1,619 9,779
Stock options, as if converted - 5 - 39
Contingent purchase price adjustment - 393 - 132
------------ ----------- ----------- -----------
Weighted average common and common
equivalent shares outstanding 1,680 11,596 1,619 9,950
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------ ------------------------------
1997 1997 1998
------------------------ ------------ ------------
(in thousands)
<S> <C> <C> <C>
Weighted average common stock
outstanding 8,471 8,411 11,051
Stock options, as if converted - - 39
Contingent purchase price adjustment - - 132
----------- ----------- -----------
Weighted average common and common
equivalent shares outstanding 8,471 8,411 11,222
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
(6) Credit Facilities
In April 1998, the Company obtained a $35.0 million revolving credit
facility (the "Revolver") from a major commercial bank. The Revolver
includes a letter of credit facility of up to $15.0 million, of which $6.0
million is currently issued and outstanding to secure a floor planning
facility with a separate bank. Borrowings under the Revolver bear interest
beginning at the London Interbank Offering Rate ("LIBOR") plus 150 basis
points or the Base Rate, which is the greater of the Federal Funds Rate
plus 0.50% or the Prime Rate, at the option of the Company. The Company is
subject to additional interest rate margins, based on a pricing ratio of
debt to earnings, ranging from 0.25% to 1.25% when using the Base Rate or
ranging from 1.50% to 2.50% when using the LIBOR rate. The borrower is also
required to pay a commitment fee at the annual percentage rate ranging from
0.25% to 0.50% as defined in the agreement. The Company must comply with
various loan covenants including (i) maintenance of certain financial
ratios; (ii) restrictions on additional indebtedness; (iii) restrictions on
liens, guarantees, advances and dividends; and (iv) restrictions on the
type, size and number of acquisitions. The Revolver, which expires in April
2001, is intended to be used for acquisitions, working capital and general
corporate purposes.
Also in April 1998, the Company obtained a $13.0 million floor planning
facility to support the working capital needs of the companies in its
desktop services division. This facility is secured by a $6.0 million
letter of credit issued under the Revolver and certain of the assets of the
desktop service division. The floor planning facility requires the Company
to comply with various loan covenants
10
<PAGE>
identical to those required under the Revolver. The facility continues
until such time that either party gives 60 days written notice of
termination or there is an event of default.
Indebtedness under both the Revolver and the floor planning facility are
collateralized by substantially all of the assets of Condor and its
subsidiaries.
(7) Income Taxes
The provision for income taxes included in the historical statement of
operations includes a $1.0 million benefit related to the reduction of a
deferred tax valuation allowance that had been recorded prior to the
Company's February 1998 Mergers and Offering.
The provision for income taxes included in the pro forma statements of
operations for the three months ended September 30, 1997 and the nine
months ended September 30, 1998 and 1997 is an estimate of the federal and
state taxes that would have been applicable to the Company had the Mergers
occurred at the beginning of each respective period. The tax rates
indicated by these provisions differ from statutory federal and state rates
primarily because the majority of the goodwill and other intangible
amortization related to the Mergers is not deductible for tax purposes.
(8) Commitments and Contingencies
Lawsuit
In the course of Condor's consolidation efforts, SCM LLC d/b/a The
Commonwealth Group ("Commonwealth"), the promoter of the Offering, and
Condor negotiated with Emtec, Inc. ("Emtec"), an IT service company based
in Pennsylvania, with a view to Emtec becoming one of the Founding
Companies. As part of the process, Emtec's investment banker and
Commonwealth executed two confidentiality agreements pursuant to which each
agreed, among other things, not to disclose certain confidential
information and Commonwealth agreed that it would not seek to enter into a
business transaction with any companies to be introduced to it by Emtec's
investment banker for a period of two years without such investment
banker's prior written consent. On October 18, 1997, Emtec filed a
Complaint in the United States District Court for the Eastern District of
Pennsylvania against Condor, Commonwealth, J. Marshall Coleman, a Managing
Director of Commonwealth and the former Chairman of the Board of Condor,
and Kennard F. Hill, the Company's Chairman of the Board and Chief
Executive Officer, alleging breach of contract, tortious interference with
Emtec's business relationship with Corporate Access, Inc. ("Corporate
Access") and Computer Hardware Maintenance Company, Inc. ("CHMC"), two of
the Founding Companies, and misappropriation of a trade secret arising out
of the participation of CHMC and Corporate Access in the consolidation and
the Offering without Emtec's written consent. In connection with the three
causes of action, Emtec seeks an injunction restraining Condor and
Commonwealth from engaging in any business transaction with CHMC or
Corporate Access through May 13, 1999, demands that the defendants disgorge
the financial benefits that they have and will obtain as a result of their
breach of contract and seeks compensatory and punitive damages. On December
31, 1997, the defendants filed an Answer, denying the allegations and
asserting various affirmative defenses. A motion by Condor for partial
summary judgment is pending before the Court. Trial of this matter could be
scheduled in the near future. Condor believes that Emtec's allegations are
without merit and that, in any event, the ultimate resolution of this
action will not have a material adverse effect on the Company's results of
operations, financial positions, or cash flows. The Company has agreed to
indemnify CHMC's directors, officers and stockholders against any liability
such persons may incur as a result of any claims brought by Emtec against
any of them that directly related to CHMC's participation as a Founding
Company. Commonwealth has agreed to indemnify the Company with regard to
any final judgment or settlement arising out of the above action or any
similar action. Commonwealth's obligations under such agreement have been
guaranteed by the three members of Commonwealth.
11
<PAGE>
(9) Comprehensive Income
Effective January 1, 1998, Condor adopted SFAS No. 130, "Reporting
Comprehensive Income." This statement establishes the standards for
reporting and displaying comprehensive income and its components in a full
set of general purpose financial statements. Comprehensive income includes
net income and several other items that are recognized directly in
reinvested earnings under current accounting standards.
Comprehensive income for the three months and the nine months ended
September 30, 1998 is detailed as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, 1998 September 30, 1998
------------------- --------------------
(in thousands)
<S> <C> <C>
Net Income $ 3,002 $ 2,023
Foreign currency translation adjustments 7 (3)
Unrealized gain (loss) on marketable securities (1) 11
------------- ------------
Comprehensive Income $ 3,008 $ 2,031
------------- ------------
------------- ------------
</TABLE>
(10) Supplemental Cash Flow Information
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
1997 1998
----------------- ----------------
(in thousands)
<S> <C> <C>
Cash Paid during the year for:
State income tax payments $ - $ 911
Interest payments - 134
Supplemental disclosure of non-cash transactions
Liability incurred for technology license $ - $ 1,550
Business acquisitions:
Cash paid for business acquisitions $ - $ 72,100
Less cash acquired - (6,371)
----------------- --------------------
Cash paid for business acquisitions, net - 65,729
Liability incurred for purchase price adjustment - 579
Issuance of common stock for business acquisition - 27,150
----------------- --------------------
- 93,458
Fair value of net assets acquired, net of cash - (1,751)
----------------- --------------------
Excess of fair value over net assets acquired $ - $ 91,707
----------------- --------------------
----------------- --------------------
</TABLE>
The excess of fair value over net assets acquired of $91.7 million includes
goodwill, internally developed software and in process research and
development acquired in conjunction with the Mergers and Acquisitions of
the Operating Companies.
12
<PAGE>
(11) New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivatives Instruments and for Hedging Activities."
SFAS No. 133 requires all derivatives to be recorded on the balance sheet
at fair value and establishes "special accounting" for the following three
different types of hedges: hedges of changes in the fair value of assets,
liabilities of firm commitments; hedges of the variable cash flows of
forecasted transactions; and hedges of foreign currency exposures of net
investments in foreign operations. SFAS No. 133 is effective for years
beginning after June 15, 1999, with earlier adoption permitted. The
Company believes that the effect of adoption of SFAS No. 133 will not be
material to its financial position or results of operations.
(12) Employee Stock Purchase Plan
On September 24, 1998, the stockholders of the Company approved the
adoption of the 1998 Employee Stock Purchase Plan ("ESPP") to provide
employees of the Company with the right to purchase common stock at a
discount from the market price through payroll deductions. A total of
325,000 shares are authorized for issuance under the ESPP. The purchase
price of shares under the plan is the lower of 85 percent of the share
price on the first day of the offering period or the share price on the
purchase date. All employees are eligible to participate except (i) those
employed for less than 20 hours per week; (ii) employees who, as a result
of participation in the ESPP, would own stock or hold options to purchase
stock possessing five percent or more of the total combined voting power
or value of all classes of stock of the Company; and (iii) employees whose
right to purchase common stock under the ESPP accrues at a rate which
exceeds $25,000 worth of stock for each calendar year in which such option
is outstanding at any time. The initial offering period commenced on
November 2, 1998.
(13) Subsequent Events
On November 4, 1998, the Company acquired all of the outstanding stock of
PowerCrew, Inc., ("PowerCrew") located in Malvern, Pennsylvania. PowerCrew
provides enterprise resource planning services and software for middle
market companies. The initial purchase price included approximately $2.8
million in cash and 72,522 shares of common stock. The Company will also
pay an additional purchase price based on PowerCrew's closing net worth to
be determined subsequent to the closing. The Company will account for this
transaction as a purchase business combination. The excess of the fair
value over net assets acquired will be recorded as goodwill and amortized
over 35 years. The purchase price allocation is subject to change as
additional information becomes available. The agreement with PowerCrew
also contains additional payments contingent on the future earnings
performance of the Company. Any additional payments made when the
contingency is resolved will be accounted for as goodwill and will be
amortized over the remaining estimated life of such goodwill.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion is qualified in its entirety by reference to and
should be read in conjunction with the Annual Report on Form 10-K of the
Company for its fiscal year ended December 31, 1997 (the "Form 10-K"). A
number of statements in this Quarterly Report on Form 10-Q address
activities, events or developments which the Company anticipates may occur
in the future, including such matters as the Company's strategy for
internal growth, additional capital expenditures (including the amount and
nature thereof), acquisitions of assets and businesses, industry trends
and other such matters. For a discussion of important factors which could
cause actual results to differ materially from the forward-looking
statements see "Special Note Regarding Forward Looking Statements."
Introduction
Condor was established to create a leading provider of a wide range of IT
services and solutions to middle market organizations and autonomous
divisions of Fortune 1000 Companies. The Company provides a single source
for a broad range of IT services and desktop and mainframe hardware
procurement. IT services include strategic planning and management
consulting; strategic marketing communications; development, integration
and installation of IT systems; contract staffing and recruiting; software
licensing; training and continuing education; call center and help-desk;
and desktop systems maintenance and support. Condor was formed in August
1996 and conducted no operations prior to the Offering.
The Company earns revenues from the provision of IT service and hardware
procurement. Revenues from hardware procurement, are recognized upon
shipment or acceptance of the equipment. The Company recognizes IT service
revenues using formulas based on time and materials, whereby revenues are
recognized as costs are incurred at agreed-upon billing rates. In certain
instances, the Company undertakes projects billed on a fixed-price basis,
whereby revenues are recognized ratably over the term of the contract.
Advance payments on certain service contracts are recorded as deferred
revenues and are recognized ratably, together with the related costs and
expenses, over the life of the contract. Revenues from license fees are
generated from sales to both end-users and resellers and are recognized
when a non-cancelable license agreement has been signed, the product has
been delivered, collection is probable and all significant obligations
relating to the license have been satisfied. There are no significant
post-sales support obligations related to the Company's license fees.
Cost of revenues includes the provision of services and material directly
related to the revenues, costs of acquisition of hardware resold to
clients, subcontracted labor or other outside services and other direct
costs associated with revenues, as well as an allocation of certain
indirect costs.
Selling, general and administrative costs include salaries, benefits,
commissions payable to the Company's sales and marketing personnel,
recruiting, finance and other general and administrative costs.
Unaudited Pro Forma Combined Results of Operations
The pro forma combined results of operations of the Founding Companies for
the periods presented below do not represent combined results of
operations presented in accordance with generally accepted accounting
principles, but are only a summation of the revenues, operating expenses
and general and administrative expenses of the individual Founding
Companies on a pro forma basis. The pro forma combined results may not be
comparable to, and may not be indicative of, the Company's
post-combination results of operations because (i) the Founding Companies
were not under common control or management during the periods presented;
(ii) the Company will incur incremental costs related to its new corporate
management and the costs of being a public company; and (iii) the combined
data do not reflect potential benefits and cost savings the Company
expects to realize when operating as a combined entity. The following
discussion should be read in conjunction with the
14
<PAGE>
Unaudited Pro Forma Combined Financial Statements and the related Notes
thereto and the Founding Companies' Historical Financial Statements and
the related Notes thereto appearing in "Item 8. Financial Statements and
Supplementary Data" of the Form 10-K.
The following table sets forth the unaudited consolidated results of
operations of the Company and the unaudited combined results of operations
on a pro forma basis of the Founding Companies and as a percentage of
revenues for the periods indicated.
<TABLE>
<CAPTION>
Historical Pro Forma
Three Months Three Months
Ended Ended
September 30, September 30,
1998 1997
------------------------- ------------------
(in thousands, except percentages)
<S> <C> <C> <C> <C>
IT service revenue $ 27,345 60.8% $ 13,075 34.4%
Hardware procurement revenue 17,662 39.2 24,904 65.6
----------- ----------- ------------ -----------
Total revenues 45,007 100.0 37,979 100.0
----------- ----------- ------------ -----------
Cost of IT services 13,109 47.9 5,865 44.9
Cost of hardware procurement 15,771 89.3 22,634 90.9
----------- ------------
Total cost of revenues 28,880 64.2 28,499 75.0
----------- ------------
Gross profit 16,127 35.8 9,480 25.0
Selling, general and administrative 9,272 20.6 5,785 15.2
expenses
Depreciation and amortization 1,310 2.9 795 2.1
----------- ----------- ------------ -----------
Income from operations $ 5,545 12.3% $ 2,900 7.7%
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
</TABLE>
Unaudited Consolidated Results for the three months ended September 30,
1998 as compared to the Unaudited Pro Forma Combined Results three months
ended September 30, 1997.
Revenues. Revenue increased $7.0 million or 18.5%, from $38.0 million for
the three months ended September 30, 1997 (pro forma) to $45.0 million for
the three months ended September 30, 1998. This increase is attributable
to growth in IT service revenues of approximately $14.3 million or 109.1%,
offset by a decrease in hardware procurement revenue of approximately $7.3
million or 29.1%.
IT service revenue increased in each of the Company's divisions. The
system services division revenue growth was primarily attributable to a
staff augmentation and software integration contract which began in the
first quarter of 1998, increases in sales of the Company's software
licenses and the acquisition of LINC in July 1998. The consulting services
revenue growth was primarily attributable to increases in consulting and
planning services within the consulting service division and to the
acquisition of DST in May 1998 and Louden in June 1998. The desktop
services division revenue growth was primarily attributable to growth in
the Company's call center, help desk and support services.
The decrease in hardware procurement revenue was primarily attributable to
a shift in the Company's focus toward higher margin IT service revenues.
In addition, hardware procurement revenues have decreased as a result of a
decrease in the average selling price due to increased competition.
15
<PAGE>
Cost of revenues. Cost of revenues increased $381,000, or 1.3%, from $28.5
million for the three months ended September 30, 1997 (pro forma) to $28.9
million for the three months ended September 30, 1998. This increase was
primarily attributable to the revenue growth discussed above. Cost of
revenues as a percentage of revenues decreased from 75.0% of revenues for
the three months ended September 30, 1997 (pro forma) to 64.2% of revenues
for the three months ended September 30, 1998. This decrease was primarily
attributable to the shift in revenue mix toward higher margin IT service
revenues.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $3.5 million or 60.3%, from $5.8 million
to $9.3 million for the three months ended September 30, 1997 (pro forma)
and 1998, respectively. The increase is attributable to the acquisitions
of DST, Louden and LINC, the hiring of additional sales and marketing
staff and administrative personnel at each of the Operating Companies,
recruiting and hiring additional personnel in the consulting and systems
services areas in anticipation of future contract growth, and corporate
costs not incurred prior to the Mergers and Acquisitions. Selling,
general, and administrative expenses increased from 15.2% of revenues to
20.6% of revenues for the three months ended September 30, 1997 (pro
forma) and September 30, 1998, respectively. This increase primarily
resulted from the additional general and administrative costs associated
with opening a corporate headquarters while retaining the decentralized
operational and administrative structures at each of the Operating
Companies.
Depreciation and amortization. Depreciation and amortization increased
$515,000, or 64.8%, from $795,000 for the three months ended September 30,
1997 (pro forma) to $1.3 million for the three months ended September 30,
1998. The increase is associated with the technology license recorded in
connection with a new contract during the first quarter of 1998, an
increase in the goodwill associated with the acquisitions of DST, Louden
and LINC, and the increase of property and equipment.
The following table sets forth the unaudited combined results of
operations of the Operating Companies on a pro forma basis and as a
percentage of revenues for the periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1998 1997
--------------------------- --------------------------
(in thousands, except percentages)
<S> <C> <C> <C> <C>
IT service revenues $ 63,644 49.2% $ 37,860 35.8%
Hardware procurement revenues 65,775 50.8 67,863 64.2
----------- ------------ ----------- -----------
Total revenues 129,419 100.0 105,723 100.0
----------- ------------ ----------- -----------
Cost of IT services 30,531 48.0 18,364 48.5
Cost of hardware procurement 59,642 90.7 61,787 91.1
----------- -----------
Total cost of revenues 90,173 69.7 80,151 75.8
----------- -----------
Gross profit 39,246 30.3 25,572 24.2
Selling, general and administrative expenses 24,269 18.7 15,192 14.4
Depreciation and amortization 3,439 2.6 2,461 2.3
----------- ------------ ----------- -----------
Income from operations $ 11,538 9.0% $ 7,919 7.5%
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
</TABLE>
Unaudited Pro Forma Combined Results for the nine months ended September
30, 1998 as compared to the nine months ended September 30, 1997
Revenues. Pro forma revenues increased $23.7 million or 22.4%, from $105.7
million for the nine months ended September 30, 1997 to $129.4 million for
the nine months ended September 30, 1998.
16
<PAGE>
This increase is attributable to growth in IT service revenues of
approximately $25.8 million or 68.1% offset by a decrease in hardware
procurement revenue of approximately $2.1 million or 3.1%.
IT service revenue increased in each of the Company's divisions. The
system services division revenue growth was primarily attributable to a
staff augmentation and software integration contract which began in the
first quarter of 1998, increases in sales of the Company's software
licenses and the acquisition of LINC in July 1998. The consulting services
revenue growth was primarily attributable to increases in consulting and
planning services within the consulting service division and to the
acquisition of DST in May 1998 and Louden in June 1998. The desktop
services division revenue growth was primarily attributable to growth in
the Company's call center, help desk and support services.
The decrease in hardware procurement revenue was primarily attributable to
a shift in the Company's focus toward higher margin IT service revenues
which caused a shift in the revenue mix away from hardware procurement. In
addition, hardware procurement revenues have decreased as a result of a
decrease in the average selling price and increased competition.
Cost of revenues. Pro forma cost of revenues increased $10.0 million, or
12.5%, from $80.2 million for the nine months ended September 30, 1997 to
$90.2 million for the nine months ended September 30, 1998. This increase
was primarily attributable to the revenue growth discussed above. Cost of
revenues as a percentage of revenues decreased from 75.8% of revenues for
the nine months ended September 30, 1997 to 69.7% of revenues for the nine
months ended September 30, 1998. This decrease was primarily attributable
to the increase in higher margin service revenues.
Selling, general and administrative expenses. Pro forma selling, general
and administrative expenses increased $9.1 million, or 59.8%, from $15.2
million to $24.3 million for the nine months ended September 30, 1997 and
1998, respectively. The increase is attributable to the acquisitions of
DST, Louden and LINC, the hiring of additional sales and marketing staff
and administrative personnel at each of the Operating Companies, the move
of the Company's corporate headquarters, recruiting and hiring personnel
in the consulting and systems services areas in anticipation of future
contract growth, and corporate costs not incurred prior to the Mergers and
Acquisitions. Selling, general, and administrative expenses increased from
14.4% of revenues to 18.7% of revenues for the nine months ended September
30, 1997 and September 30, 1998, respectively. This increase primarily
resulted from the additional general and administrative costs associated
with opening a corporate headquarters while retaining the decentralized
operational and administrative structures at each of the Operating
Companies.
Depreciation and amortization. Depreciation and amortization increased
$978,000, or 39.7%, from $2.5 million for the nine months ended September
30, 1997 to $3.4 million for the nine months ended September 30, 1998. The
increase is associated with the technology license recorded in connection
with a new contract during the first quarter of 1998, an increase in the
goodwill associated with the acquisitions of DST, Louden and LINC, and an
increase in depreciation in connection with the purchase of property and
equipment.
Historical Results of Operations
Financial statement audits of the Founding Companies have been completed
through January 31, 1998. As there were no significant transactions from
February 1, 1998 to the February 10, 1998 closing of the Mergers, January
31, 1998 is considered to represent the pre-merger closing balance sheet.
Upon consummation of the Mergers, all of the individual Founding Companies
on a fiscal year financial reporting basis converted to a calendar year
financial reporting basis. In addition, all individual Founding Companies
are now included in the consolidated tax return of Condor and have,
therefore, converted their tax status to be taxed under subchapter C of
the Internal Revenue Code of 1986, as amended.
17
<PAGE>
On February 1, 1998 (the date of post-Merger balance sheet), Condor began
reporting on a consolidated basis. For the year ended December 31, 1998,
Condor will report consolidated operating results of the Founding
Companies for eleven months and the operating results of the newly
acquired companies as of their respective purchase dates. Similarly,
Condor's consolidated 1998 nine month results include only February
through September 1998 operations and cash flows for the Operating
Companies.
The following table sets forth certain selected financial data for the
Company on a historical basis and as a percentage of revenues for the
periods indicated:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1998 1997
--------------------------- --------------------------
(in thousands, except percentages)
<S> <C> <C> <C> <C>
IT Service revenues $ 59,369 51.9% $ - -%
Hardware procurement revenues 54,989 48.1 - -
----------- ------------ ----------- -----------
Cost of revenues 114,358 100.0 - -
----------- ------------ ----------- -----------
Cost of IT services 28,680 48.3 - -
Cost of hardware procurement 49,814 90.6 - -
----------- -----------
Total cost of revenues 78,494 68.6 - -
----------- -----------
Gross profit 35,864 31.4 - -
Selling, general and administrative expenses 22,124 19.3 831 -
Depreciation and amortization 3,125 2.7 - -
In process research and development 5,000 4.4 - -
----------- ------------ ----------- -----------
Income from operations $ 5,615 5.0% $ (831) -%
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
</TABLE>
Revenues. For the nine months ended September 30, 1998, the Company's
revenues include the revenues of the Founding Companies for February
through September 1998 and the revenues of DST, Louden and LINC from their
respective acquisition dates of May 5, 1998, June 30, 1998 and July 16,
1998. No single customer accounts for more than 10% of the Company's
consolidated revenues.
Cost of Revenues. Cost of revenues was $78.5 million, or 68.6% of sales
for the nine months ended September 30, 1998. The Company generates higher
gross margins from its systems and consulting services businesses while
the procurement component of its desktop service business generates its
lowest margins. Revenues from IT service sales for the nine months were
approximately 51.9% of total revenues.
Selling, general and administrative expenses. Selling, general and
administrative expenses were $22.1 million in 1998, which consist of
salaries, benefits, commissions payable to the Company's sales and
marketing personnel, recruiting, finance costs and other general and
administrative costs. Expenses incurred in the first nine months of
1997 represent payment of salary to one officer of the Company and
facilities costs.
Depreciation and Amortization. Depreciation and amortization includes the
depreciation of property and equipment, the amortization of goodwill from
the purchase of the Company's subsidiaries, internally developed software
costs, and the technology license recorded in connection with a new
contract.
18
<PAGE>
Liquidity and Capital Resources
Condor's principal sources of liquidity are the cash flows of its
operating divisions, cash available from its credit facilities obtained in
April 1998, and the unallocated net proceeds of the Offering. At September
30, 1998 the Company had $6.9 million in cash and cash equivalents,
$167,000 in marketable securities, and $854,000 of indebtedness
outstanding, which consists primarily of capital lease obligations.
Net cash provided by operating activities was $5.1 million for the nine
months ended September 30, 1998. Net cash used in investing activities was
$68.8 million for the nine months ended September 30, 1998 which included
$65.7 million, net of cash acquired, for the acquisition of the Operating
Companies.
Net cash provided by financing activities was $70.6 million for the nine
months ended September 30, 1998 and included $72.9 million from the
Company's Offering, net of costs, and repayment of notes payable.
The Company intends to continue to pursue acquisition opportunities. The
timing, size or success of any acquisition effort and the associated
potential capital commitments are unpredictable. The Company expects to
fund future acquisitions primarily through a combination of cash flow from
operations and borrowings, including borrowings under the Revolver, as
well as issuances of additional shares of Common Stock.
The Company believes that its cash flow from operations and borrowings
under its credit facilities will be sufficient to fund its cash flow
requirements for at least the next 12 months. To the extent that the
Company is successful in consummating acquisitions, it may be necessary to
finance such acquisitions through the issuance of additional equity
securities, incurrence of indebtedness or both.
Year 2000
Impact of Year 2000 Issue. The Year 2000 issue is the result of certain
computer programs being written using two digits rather than four to
define the applicable year. Any computer programs or hardware that have
date-sensitive software or embedded chips may recognize a date using "00"
as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities.
Based on recent assessments, the Company determined that it will be
required to modify or replace portions of hardware and software so that
those systems will properly utilize dates beyond December 31, 1999. The
Company presently believes that with modifications and replacement of some
of the existing hardware and software, the Year 2000 issue can be
mitigated. However, if such modifications and replacements are not made,
or are not completed timely, the Year 2000 issue could have a small to
moderate impact on the Company's operations. The Company currently does
not have a formal contingency plan in place, however a plan is expected
to be completed by July 1999.
The Company's plan to resolve the Year 2000 issues involves four phases:
assessment, remediation, testing and implementation.
Assessment. The Company has fully completed its assessment of all material
systems and Company products that could be affected by the Year 2000
issue. The completed assessment indicated that a portion of the Company's
information technology systems could be affected. That assessment also
indicated that the current accounting system is at risk of not being
Year 2000 compliant. If not resolved on a timely basis, this could affect
the Company's ability to provide adequate and timely billing information.
19
<PAGE>
Remediation. The Company estimates that it is 60% complete in the
remediation phase of all material systems and expects to complete
corporate remediation by May 1999. After completing remediation, the
Company's plans include testing and implementing its information
technology systems.
Testing and Implementation. The Company estimates it has completed 60%
of its testing and implementation of its remediated systems. Completion
of the testing phase is expected by June 1999 with all remediated
systems fully implemented by August 1999. In certain cases, the remedy
is a replacement of the system or software. For example, the Company
plans to install new accounting software in 1999 which will be Year
2000 compliant.
Third Parties. With respect to third parties, the Company has completed
its assessment and estimates it is 80% complete with the remediation,
testing and implementation phases of systems that interface directly
with significant vendors. Testing of all material systems is expected
to be completed by July 1999.
The Company is in the process of surveying its significant suppliers
that do not involve system interface. The Company has no means of
ensuring that these suppliers will be Year 2000 ready, and the
inability of those parties to complete the Year 2000 resolution process
could materially impact the Company. The effect of non-compliance by
third parties where no system interface exists is not determinable. The
Company is not aware of any problems with third parties that would
materially impact results of operations, liquidity, or capital
resources. To the extent that certain licensed products proprietary to
the Company are non-compliant, the Company is offering to provide
upgrades to its customers.
Cost. The Company will utilize both internal and external resources to
update or replace, test, and implement the affected information technology
systems for Year 2000 modifications. The total cost of the Year 2000
project is estimated at $1.5 million and is being funded through operating
cash flows. Expenditures to date have related to all phases of the Year
2000 project. As of September 30, 1998, the cost incurred to date is
approximately $400,000. Remaining costs relate to the purchase of new
software and operating equipment and the acquisition of external
resources to complete implementation of new systems.
The Company's plans to complete the Year 2000 modifications are based on
management's best estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of
certain resources and other factors. Estimates on the status of completion
and the expected completion dates are based on costs incurred to date
compared to total expected costs. However, there can be no guarantee that
these estimates will be achieved, and actual results could differ
materially from those plans. Special factors that might cause such
material differences include, but are not limited to, the availability and
cost of personnel trained in this area, the ability to locate and correct
all relevant computer codes, and similar uncertainties.
Special Note Regarding Forward Looking Statements
Statements in this Form 10-Q based on current expectations that are not
strictly historical statements, such as the Company's or management's
intentions, hopes, beliefs, expectations, strategies, or predictions, are
forward-looking statements. Such statements, or any other variation
thereof regarding the Company's future activities or other future events
or conditions within the meaning of Section 27A of the Securities Act and
Section 21E of the Securities Exchange Act of 1934, as amended, are
intended to be covered by the safe harbors for forward-looking statements
created thereby. Investors are cautioned that all forward-looking
statements involve risks and uncertainty, including without limitation,
the sufficiency of the Company's working capital and the ability of the
Company to realize benefits from consolidating certain general and
administrative functions, to pursue strategic acquisitions and alliances,
to retain management and to implement its focused business strategy, to
leverage consulting services, secure full-service contracts, to expand
client relationships, successfully recruit, train and retain personnel,
expand services and geographic reach and successfully defend itself in
ongoing and future litigation. These factors are discussed more fully in
the Form 10-K, including the discussions under "Business-Risk Factors".
20
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
21
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the course of Condor's consolidation efforts, SCM LLC d/b/a The
Commonwealth Group ("Commonwealth"), the promoter of the Offering,
and Condor negotiated with Emtec, Inc. ("Emtec"), an IT service
company based in Pennsylvania, with a view to Emtec becoming one
of the Founding Companies. As part of the process, Emtec's
investment banker and Commonwealth executed two confidentiality
agreements pursuant to which each agreed, among other things, not
to disclose certain confidential information and Commonwealth
agreed that it would not seek to enter into a business transaction
with any companies to be introduced to it by Emtec's investment
banker for a period of two years without such investment banker's
prior written consent. On October 18, 1997, Emtec filed a
Complaint in the United States District Court for the Eastern
District of Pennsylvania against Condor, Commonwealth, J. Marshall
Coleman, a Managing Director of Commonwealth and the former
Chairman of the Board of Condor, and Kennard F. Hill, the
Company's Chairman of the Board and Chief Executive Officer,
alleging breach of contract, tortious interference with Emtec's
business relationship with Corporate Access, Inc. ("Corporate
Access") and Computer Hardware Maintenance Company, Inc. ("CHMC"),
two of the Founding Companies, and misappropriation of a trade
secret arising out of the participation of CHMC and Corporate
Access in the consolidation and the Offering without Emtec's
written consent. In connection with the three causes of action,
Emtec seeks an injunction restraining Condor and Commonwealth from
engaging in any business transaction with CHMC or Corporate Access
through May 13, 1999, demands that the defendants disgorge the
financial benefits that they have and will obtain as a result of
their breach of contract and seeks compensatory and punitive
damages. On December 31, 1997, the defendants filed an Answer,
denying the allegations and asserting various affirmative
defenses. A motion by Condor for partial summary judgment is
pending before the Court. Trial of this matter could be scheduled
in the near future. Condor believes that Emtec's allegations are
without merit and that, in any event, the ultimate resolution of
this action will not have a material adverse effect on the
Company's results of operations, financial positions, or cash
flows. The Company has agreed to indemnify CHMC's directors,
officers and stockholders against any liability such persons may
incur as a result of any claims brought by Emtec against any of
them that directly related to CHMC's participation as a Founding
Company. Commonwealth has agreed to indemnify the Company with
regard to any final judgment or settlement arising out of the
above action or any similar action. Commonwealth's obligations
under such agreement have been guaranteed by the three members of
Commonwealth.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company's Registration Statement on Form S-1 (Registration No.
333-55689) was declared effective on June 4, 1998. The securities
registered consisted of 5,000,000 shares of common stock, which
may be offered and issued by the Company from time to time in
connection with the merger with or acquisition by the Company of
other businesses or assets. No underwriting discounts or
commissions were paid, although finder's fees may be paid from
time to time with respect to specific mergers or acquisitions.
In connection with the Offering, the Company's Registration
Statement on Form S-1 (Registration No. 333-37179) was declared
effective on February 5, 1998. The managing underwriters were
Volpe Brown Whelan & Company LLC, Furman Selz LLC and Wheat First
Union, a division of Wheat First Securities, Inc. The Offering
commenced on February 5, 1998, all securities offered thereby were
sold and the Offering has terminated. The securities registered
consisted of 6,785,000 shares (the "Offered Shares") of Common
Stock, all of which were sold for the account of the Company.
22
<PAGE>
The Offered Shares were sold at a price to the public of $13.00
per share, for aggregate gross proceeds of approximately $88.2
million. The total expenses incurred in connection with the
Offering, including underwriting discounts and commissions, are
estimated to be approximately $15.3 million, resulting in net
Offering proceeds of approximately $72.9 million. Such expenses
include approximately $2.8 million in funds advanced by a member
of Commonwealth, together with interest on such advances at the
prime rate.
As of October 31, 1998, the net proceeds have been used as
follows: (a) $47.1 million to pay the cash portion of the purchase
price for the Founding Companies and S-corporation distributions,
of which approximately $9.8 million was paid directly to Mr. C.
Lawrence Meador, a director and holder of more than 5% of the
Common Stock of the Company; (b) approximately $1.8 million for
repayment of indebtedness; (c) approximately $24.0 million for the
acquisition of the additional Operating Companies.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders on September 24, 1998, the
following proposals were adopted by the margins indicated:
1. To elect two Class I Directors, each for a term of three years and
until their respective successors have been elected and qualified.
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
Peter T. Garahan 8,808,693 797
C. Lawrence Meador 8,808,693 797
</TABLE>
2. To amend the Company's 1997 Long-Term Incentive Plan to increase
the number of shares of common stock authorized to be issued
thereunder from 12% to 15% of outstanding shares.
For 5,573,577
Against 1,587,381
Abstain 5,271
3. To adopt an Employee Stock Purchase Plan.
For 4,815,409
Against 2,345,849
Abstain 4,971
4. To ratify the appointment of PricewaterhouseCoopers LLP as the
Company's independent accountants for 1998.
For 8,807,763
Against 1,227
Abstain 500
ITEM 5. OTHER INFORMATION
Not applicable.
23
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (see index on page 23)
(b) Reports on Form 8-K
Not applicable.
24
<PAGE>
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 thereunto duly authorized.
CONDOR TECHNOLOGY SOLUTIONS, INC.
Date /s/ November 13, 1998 By: /s/ Kennard F. Hill
-------------------------- ---------------------------------------
Kennard F. Hill
Chairman of the Board and Chief Executive
Officer
(Principal Executive Officer)
Date /s/ November 13, 1998 By: /s/ William J. Caragol, Jr.
-------------------------- ---------------------------------------
William J. Caragol, Jr.
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
25
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
10.12 Stock Purchase Agreement dated as of November 3, 1998, by and
among the Company and the Stockholders of PowerCrew, Inc.
11 Statement re: computation of earnings per share
27 Financial Data Schedule for the three and nine months ended
September 30, 1998
26
<PAGE>
Exhibit 10.12
- ------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
dated as of November 3, 1998
by and among
CONDOR TECHNOLOGY SOLUTIONS, INC.
and
The Stockholders of POWERCREW, INC.
- ------------------------------------------------------------------------------
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made November 3,
1998, and effective November 4, 1998, by and among CONDOR TECHNOLOGY
SOLUTIONS, INC., a Delaware corporation ("CONDOR"), and PETER T. DUFLO and
ROBERT GENZANO (each a "STOCKHOLDER" and collectively the "STOCKHOLDERS").
The STOCKHOLDERS are the sole stockholders of POWERCREW, INC., a Pennsylvania
corporation ("POWERCREW").
WHEREAS, STOCKHOLDERS desire to sell to CONDOR, and CONDOR desires to
purchase from STOCKHOLDERS, all of the issued and outstanding shares of capital
stock of POWERCREW for the consideration, and on the terms, set forth in this
Agreement.
WHEREAS, unless the context otherwise requires, capitalized terms used
in this Agreement or in any schedule or exhibit attached hereto and not
otherwise defined herein shall have the following meanings for all purposes of
this Agreement:
"Affiliate" means a Person that directly or indirectly through one or
more intermediaries, controls or is controlled by, or is under common control
with, a specified Person. For the purposes hereof, the term "control" (including
the terms "controlling," "controlled by" and "under common control with") means
the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"A/R Aging Reports" has the meaning set forth in Section 6.11.
"Balance Sheet Date" means October 31, 1998.
"Benefit Plan" means any Plan, existing at the Closing Date or prior
thereto, established or to which contributions have at any time been made by
POWERCREW, any ERISA Affiliate, or any predecessor of any of the foregoing,
under which any employee or former employee of POWERCREW, or any beneficiary
thereof, is covered, is eligible for coverage or has benefit rights.
"CONDOR" has the meaning set forth in the first paragraph of this
Agreement.
"CONDOR Charter Documents" has the meaning set forth in Section 3.1.
"CONDOR's Closing Documents" has the meaning set forth in Section
1.8(b)
"CONDOR Stock" means the common stock, par value $.01 per share, of
CONDOR.
"Closing" means the consummation of the transactions contemplated by
this Agreement on the Closing Date.
"Closing Date" has the meaning set forth in Section 1.7.
"Code" means the Internal Revenue Code of 1986, as amended.
<PAGE>
"Earnout Price" has the meaning set forth in Section 1.4.
"Earnout Payment Date" has the meaning set forth in Section 1.4(c).
"Environmental Requirements" has the meaning set forth in Section 2.10.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any Person who is, or at any time was, a
member of a controlled group (within the meaning of Section 412(n)(6) of the
Code) that includes, or at any time included, POWERCREW or any predecessor of
POWERCREW.
"Expiration Date" has the meaning set forth in Section 2.
"GAAP" means generally accepted accounting principles of the United
States.
"Governmental Authority" means any governmental, regulatory or
administrative body, agency, subdivision or authority, any court or judicial
authority, or any public, private or industry regulatory authority, whether
national, federal, state, local or otherwise.
"Hazardous Materials" has the meaning set forth in Section 2.10(b).
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (15 U.S.C. ss. 18a) and the rules and regulations
promulgated thereunder.
"Intellectual Property" means all trademarks, service marks, trade
dress, trade names, patents and copyrights and any registration or
application for any of the foregoing, and any trade secret, invention,
process, know-how, computer software or technology systems.
"Interim Balance Sheet" is a statement which the parties agree is
accurate and correct and fairly presents POWERCREW's financial condition,
assets and liabilities, and stockholders' equity as of September 30, 1998,
and which is attached hereto as Schedule 1.2.
"Knowledge," "knowledge," "the best knowledge of," "known to" or
words of similar import used herein with respect to POWERCREW or the
STOCKHOLDERS shall mean the actual knowledge of POWERCREW and/or the
STOCKHOLDERS, together with the knowledge a reasonable business person would
have obtained after making reasonable inquiry and after exercising reasonable
diligence with respect to the matters at hand.
"Laws" has the meaning set forth in Section 2.18.
"Material Adverse Effect" means, with respect to any Person, any
event or occurrence which would have a material adverse effect on such
Person's business, condition (financial or other), properties, business
prospects or financial results.
2
<PAGE>
"Material Contract" means any lease, instrument, agreement, license
or permit set forth on Schedule 2.9, 2.10, 2.11, 2.12, 2.13, 2.15 or 2.16 or
any other material agreement to which POWERCREW is a party or by which its
properties are bound.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means any natural person, corporation, partnership,
proprietorship, other business organization, trust, union, association or
Governmental Authority.
"Plan" means any bonus, incentive compensation, deferred
compensation, pension, profit sharing, retirement, stock purchase, stock
option, stock ownership, stock appreciation rights, phantom stock, leave of
absence, layoff, vacation, day or dependent care, legal services, cafeteria,
life, health, accident, disability, workmen's compensation or other
insurance, severance, separation or other employee benefit plan, practice,
policy or arrangement of any kind, whether written or oral, or whether for
the benefit of a single individual or more than one individual including, but
not limited to, any "employee benefit plan" within the meaning of Section
3(3) of ERISA.
"POWERCREW" has the meaning set forth in the first paragraph of this
Agreement.
"POWERCREW Charter Documents" has the meaning set forth in Section 2.1.
"POWERCREW Stock" means the common stock, without par value, of
POWERCREW.
"Price Determination Period" has the meaning set forth in Section
1.3(b).
"Returns" has the meaning set forth at the end of Section 2.19.
"Scenica" means Scenica, LLC, a Delaware limited liability company to
be formed pursuant to Section 1.6 hereof.
"Scenica Documents" means the documents and deliveries described in
Section 1.6 hereof.
"Schedule" means each Schedule attached hereto, which shall
reference the relevant sections of this Agreement, on which parties hereto
disclose information as part of their respective representations, warranties
and covenants.
"SEC" means the United States Securities and Exchange Commission.
"Statutory Liens" has the meaning set forth in Section 4.3(e).
3
<PAGE>
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"STOCKHOLDER Closing Documents" has the meaning set forth in Section
1.8(a).
"Tax" or "Taxes" has the meaning set forth at the end of Section 2.19.
"Taxing Authority" has the meaning set forth at the end of Section
2.19.
"Third Person" has the meaning set forth in Section 8.3.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. SALE AND TRANSFER OF POWERCREW STOCK; CLOSING
1.1 POWERCREW Stock. Subject to the terms and conditions of this
Agreement, at the Closing, STOCKHOLDERS will sell and transfer the POWERCREW
Stock to CONDOR, and CONDOR will purchase the POWERCREW Stock from
STOCKHOLDERS.
1.2 Purchase Price.
(a) The purchase price (the "Purchase Price") for the
POWERCREW Stock will be equal to (a) the "Closing Price," as defined in
Section 1.2(b) below, plus (b) the "Earnout Price" as defined in Section 1.4,
minus (c) the "Net Worth Adjustment," as defined in Section 1.5.
(b) The Closing Price shall equal to Two Million Eight
Hundred Sixty Three Thousand Three Hundred Thirty Six Dollars ($2,863,336).
1.3 Payment of the Closing Price. The Closing Price shall be paid as
follows:
(a) An amount equal to One Million Eight Hundred Thirteen
Thousand Three Hundred Thirty Six ($1,813,336) shall be payable at Closing by
cashier's or certified check or wire transfer of next day funds to the
STOCKHOLDERS in proportion to their stock ownership as set forth in Schedule
1.3(a) hereto.
(b) CONDOR shall deliver to the STOCKHOLDERS shares of
CONDOR Stock valued at Eight Hundred Thousand Dollars ($800,000). The value
of CONDOR Stock shall be determined based on the average of the closing price
per share for CONDOR Stock for the ten (10) trading days immediately
preceding the date which is five (5) trading days immediately prior to the
Closing Date, the Earnout Payment Date, or other payment date, as applicable,
as reported on the Nasdaq National Market. The foregoing ten (10) day period
shall be referred to as the "Price Determination Period." In the event that
there shall be no trade on any trading day within the Price Determination
Period, or if the Nasdaq National Market shall fail to report a closing price
on any such day, the closing price for such day shall be the average of the
closing bid price and the closing asked price as reported by the Nasdaq
National Market. In
4
<PAGE>
the event of a dividend payable in shares of CONDOR Stock, or the combination
or subdivision of CONDOR Stock, the calculation for determining the value per
share of CONDOR Stock shall be proportionally adjusted to reflect such event.
(c) An amount equal to Two Hundred Fifty Thousand Dollars
($250,000) (the "Escrowed Funds") shall be retained in escrow by CONDOR
pursuant to an Escrow Agreement in the form attached hereto as Exhibit 1.3(c)
(the "Escrow Agreement"), subject to preparation of the Closing Date Balance
Sheet and any Net Worth Adjustment to the Purchase Price determined and
effectuated in accordance with Section 1.5 of this Agreement.
1.4 Earnout Price.
(a) The Earnout Price (which is a portion of the Purchase
Price payable for the POWERCREW Stock) shall be equal to the sum of the
following:
(i) For the balance of POWERCREW's fiscal year ending
December 31, 1998 ("partial 1998"), the Earnout Price shall be the lesser of
$500,000 or the amount of POWERCREW's "1998 Net Worth" (as defined in Section
1.4(b) below) that exceeds the "Closing Date Net Worth" (as defined in Section
1.5(a) below).
(ii) For POWERCREW's twelve months ended December
31, 1999 ("fiscal 1999"), the Earnout Price shall be the lesser of $2,500,000
or the product of (A) Four (4) and (B) the amount of POWERCREW's Pre-tax
Earnings that exceeds $900,000 but is less than $1,566,667, if any, for
fiscal 1999; and
(ii) For POWERCREW's twelve months ended December
31, 2000 ("fiscal 2000"), the Earnout Price shall be the lesser of $3,000,000
or the product of (A) Four (4) and (B) the amount of POWERCREW's Pre-tax
Earnings that exceeds $1,900,000 but is less than $2,650,000, if any, for
fiscal 2000.
(b) For purposes of this Agreement:
(i) "1998 Net Worth" shall be determined based
upon the balance sheet of POWERCREW as of December 31, 1998 and shall be
equal to POWERCREW's stockholders' equity (within the meaning of GAAP) as of
December 31, 1998.
(ii) "Pre-tax Earnings" shall mean, as to each
fiscal year or portion thereof, POWERCREW's earnings after interest,
depreciation and amortization, but before federal and state taxes, calculated
in accordance with GAAP, but without giving effect to (x) any intercompany
costs or charges imposed by CONDOR for services provided to POWERCREW (other
than charges for services provided by CONDOR that were previously arranged
for and independently paid by POWERCREW) or (y) the amortization of
intangible assets resulting from the transactions contemplated by this
Agreement. Notwithstanding the foregoing, Pre-tax Earnings for such periods
shall include all costs or other charges imposed for services or products
provided by CONDOR to POWERCREW for use in connection with the servicing of
POWERCREW's customers.
5
<PAGE>
1998 Net Worth and Pre-tax Earnings shall be determined by POWERCREW in
accordance with GAAP as reported on financial statements prepared at the
direction of the STOCKHOLDERS and shall be subject to review and audit by
CONDOR or its representatives if there are any questions which cannot be
resolved directly between CONDOR and POWERCREW management personnel. CONDOR
shall determine within ten (10) days after receipt of financial statements
reflecting 1998 Net Worth or Pre-tax Earnings whether it will conduct an
audit to resolve the calculation of 1998 Net Worth or Pre-tax Earnings.
(c) The Earnout Price, if any, payable for partial 1998,
fiscal 1999 and fiscal 2000 shall be paid ninety (90) days after the end of
each such year (the "Earnout Payment Date"). The Earnout Price payable with
respect to Pre-tax Earnings for partial 1998 shall be paid by cashier's or
certified check or via wire transfer, and the Earnout Price payable with
respect to Pre-tax Earnings for fiscal 1999 and fiscal 2000 shall be paid by
CONDOR's delivery of CONDOR Stock valued as set forth in Section 1.3(b).
1.5. Net Worth Adjustment. The "Net Worth Adjustment" shall be the
amount, if any, by which Sixty Three Thousand Three Hundred Thirty Six
Dollars ($63,336) exceeds POWERCREW's "Closing Date Net Worth" (defined
below).
(a) For the purposes hereof, "Closing Date Net Worth" shall
be determined based upon the balance sheet prepared for POWERCREW as of
October 31, 1998 (the "Closing Date Balance Sheet") and shall be equal to
POWERCREW's stockholders' equity (within the meaning of GAAP) as of October
31, 1998. Closing Date Net Worth shall be determined by POWERCREW in
accordance with GAAP as reported on the Closing Date Balance Sheet prepared
at the direction of the STOCKHOLDERS within fifteen (15) days after the
Closing, and shall be subject to review and audit by CONDOR or its
representatives if there are any questions which cannot be resolved directly
between CONDOR and POWERCREW management personnel. CONDOR shall determine
within ten (10) days after receipt of the Closing Date Balance Sheet whether
it will conduct an audit to resolve the calculation of Closing Date Net
Worth, and if it decides to conduct an audit, shall complete such audit
within thirty (30) days after receipt of the Closing Date Balance Sheet.
(b) CONDOR shall deduct the Net Worth Adjustment, if any,
from the Escrowed Funds, provided that if the amount paid to the Escrow Agent
is less than the Net Worth Adjustment after final determination thereof, the
STOCKHOLDERS shall, upon demand, pay the amount of the shortfall to CONDOR.
1.6. Scenica. At or prior to the Closing, the parties shall cause
the formation of Scenica, LLC, and the contribution of certain assets to
Scenica, in accordance with the Operating Agreement attached hereto as
Exhibit 1.6 and the documents contemplated to be executed in connection
therewith (the "Scenica Documents").
1.7. Closing. The purchase and sale (the "Closing") provided for in
this Agreement will be effective as of 12:01 a.m. on November 4, 1998 (the
"Closing Date"), and will take place by means of exchange of signatures and
documents via facsimile transmission and overnight courier.
6
<PAGE>
1.8 Closing Obligations. At the Closing:
(a) STOCKHOLDERS shall deliver or cause to be
delivered to CONDOR the following: ("STOCKHOLDERS' Closing Documents"):
(i) Certificates representing the POWERCREW Stock,
duly endorsed (or accompanied by duly executed stock powers) for transfer to
CONDOR;
(ii) Employment agreements (the "Employment
Agreements") in the form of Exhibits 1.8(a)(ii)(A) and 1.8(a)(ii)(B),
executed by each of the STOCKHOLDERS;
(iii) The Escrow Agreement, executed by each of the
STOCKHOLDERS;
(iv) A certificate executed by STOCKHOLDERS to the
effect that (A) except as otherwise stated in such certificate, STOCKHOLDERS'
representations and warranties in this Agreement were accurate in all
respects as of the date of this Agreement and are accurate in all respects as
of the Closing Date as if made on the Closing Date; and (B) STOCKHOLDERS have
performed and complied with all covenants and conditions required to be
performed or complied with by the STOCKHOLDERS prior to or at the Closing;
(v) Resignations of all directors of POWERCREW;
(vi) A Good Standing Certificate of POWERCREW as
of a recent date from the Pennsylvania Secretary of State and from all states
in which POWERCREW is authorized to do business; and
(vii) The Scenica Documents, executed by the
STOCKHOLDERS.
(b) CONDOR shall deliver or cause to be delivered to
STOCKHOLDERS the following ("CONDOR's Closing Documents"):
(i) A certificate executed by CONDOR to the effect
that (A) except as otherwise stated in such certificate, CONDOR's
representations and warranties in this Agreement were accurate in all
material respects as of the date of this Agreement and are accurate in all
material respects as of the Closing Date as if made on the Closing Date; (B)
CONDOR has performed and complied with all covenants and conditions required
to be performed or complied with by it prior to or at the Closing; and (C)
attesting to the incumbency of officers executing documents on behalf of
CONDOR;
(ii) The portions of the Purchase Price described
in Sections 1.3(a) and 1.3(b);
(iii) The Escrowed Funds to the Escrow Agent in
accordance with Section 1.3(c), together with the Escrow Agreement executed
by CONDOR and the Escrow Agent;
(iv) The Employment Agreements executed by CONDOR;
7
<PAGE>
(v) A good standing certificate for CONDOR from
the State of Delaware; and
(vi) The Scenica Documents executed by CONDOR.
(c) CONDOR on the one hand, and STOCKHOLDERS on the other
hand, shall also deliver such other documents, instruments, certificates, and
opinions as may be required by this Agreement or as otherwise necessary to
consummate the transactions contemplated hereby.
2. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
The STOCKHOLDERS, jointly and severally, represent and warrant to
CONDOR that all of the following representations and warranties in this
Section 2 are true and correct at the date of this Agreement and shall be
true and correct at the time of the Closing Date, and that such
representations and warranties shall survive the Closing Date for a period of
eighteen (18) months (the last day of such period being the "Expiration
Date"), except that the representations and warranties set forth in Section
2.19 hereof shall survive until such time as the statute of limitations
period has run for all tax periods ended on or prior to the Closing Date,
which shall be deemed to be the Expiration Date for Section 2.19.
2.1 Due Organization. POWERCREW is a corporation duly incorporated,
validly existing and in good standing under the laws of its state of its
incorporation, and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted, to
own or hold under lease the properties and assets it now owns or holds under
lease, and to perform all of its obligations under the Material Contracts;
POWERCREW is duly qualified to do business in the jurisdictions listed in
Schedule 2.1 and, except as set forth on Schedule 2.1, there are no other
jurisdictions in which the conduct of POWERCREW's business or activities or
its ownership of assets requires any other qualification under applicable
law, the absence of which would have a Material Adverse Effect on POWERCREW.
True, complete and correct copies of the Certificate or Articles of
Incorporation and By-laws, each as amended, of POWERCREW (the "Charter
Documents") will be delivered to CONDOR pursuant to Section 6.4 hereof. The
minute books and stock records of POWERCREW, as heretofore made available to
CONDOR, are correct and complete in all material respects.
2.2 Authorization. The STOCKHOLDERS have the authority to execute
and deliver this Agreement and to perform their obligations hereunder. This
Agreement constitutes the valid and binding obligation of the STOCKHOLDERS,
enforceable in accordance with its terms.
2.3 Capital Stock of POWERCREW. The authorized capital stock of
POWERCREW is as set forth in Schedule 2.3. All of the issued and outstanding
shares of capital stock of POWERCREW are owned by the STOCKHOLDERS in the
proportions set forth in Schedule 1.3(a), free and clear of all liens,
security interests, pledges, charges, voting trusts, restrictions,
encumbrances and claims of every kind. All of the issued and outstanding
shares of capital stock of POWERCREW have been duly authorized and validly
issued, are fully paid and nonassessable, are owned of record and
beneficially by the STOCKHOLDERS and were offered, issued, sold and delivered
by POWERCREW in compliance with all
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applicable state and federal laws concerning the issuance of
securities. None of such shares were issued in violation of the preemptive
rights of any past or present stockholders.
2.4 Capital Structure of POWERCREW. POWERCREW has not acquired any
capital stock since inception. Except as set forth on Schedule 2.4: (i) no
option, warrant, call, conversion right or commitment of any kind exists
which obligates POWERCREW to issue any of its authorized but unissued capital
stock or its treasury stock; and (ii) POWERCREW has no obligation (contingent
or otherwise) to purchase, redeem or otherwise acquire any of its equity
securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 2.4 includes a complete listing of
all stock option or stock purchase plans, including a list of all outstanding
options, warrants or other rights to acquire shares of POWERCREW capital
stock and a description of the material terms of such outstanding options,
warrants or other rights, true, correct and complete copies of which have
been supplied to CONDOR.
2.5 Subsidiaries. Schedule 2.5 attached hereto lists the name of
each of POWERCREW's subsidiaries and sets forth the number and class of the
authorized capital stock of each of POWERCREW's subsidiaries and the number
of shares of each of POWERCREW's subsidiaries which are issued and
outstanding, all of which shares are owned by POWERCREW, free and clear of
all liens, security interests, pledges, voting trusts, equities,
restrictions, encumbrances and claims of every kind. Except as set forth on
Schedule 2.5, POWERCREW does not presently own, of record or beneficially, or
control, directly or indirectly, any capital stock, securities convertible
into capital stock or any other equity interest in any corporation,
association or business entity nor is POWERCREW, directly or indirectly, a
participant in any joint venture, partnership or other non-corporate entity.
2.6 Financial Statements. Attached hereto as Schedule 2.6 are copies
of the following financial statements: Balance Sheets and Income Statements,
at and for each of the years ended December 31, 1995, 1996 and 1997 and for
the nine-month period ended September 30, 1998 prepared by POWERCREW (the
"Financial Statements"). Each of the Financial Statements is consistent with
the books and records of POWERCREW (which, in turn, are accurate and complete
in all material respects) and fairly presents POWERCREW's financial
condition, assets and liabilities as of their respective dates and the
results of operations and cash flows for the periods related thereto in
compliance with GAAP, consistently applied among the periods which are the
subject of the Financial Statements.
2.7 Liabilities and Obligations. The STOCKHOLDERS have delivered to
CONDOR an accurate list (which is set forth on Schedule 2.7) as of the
Balance Sheet Date of (i) all liabilities of POWERCREW in excess of $10,000
which are not reflected in the POWERCREW Financial Statements at the Balance
Sheet Date, and (ii) all loan agreements, indemnity or guaranty agreements,
bonds, mortgages, liens, pledges or other security agreements to which
POWERCREW is a party. Except as set forth on Schedule 2.7, since the Balance
Sheet Date, POWERCREW has not incurred any material liabilities of any kind,
character and description, whether accrued, absolute, secured or unsecured,
contingent or otherwise, other than liabilities incurred in the ordinary
course of business. The STOCKHOLDERS have also set forth on Schedule 2.7, in
the case of those contingent liabilities related to pending or threatened
litigation, or other liabilities which are not fixed or are being contested,
the following information:
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(a) a summary description of the liability, together with:
(i) copies of all relevant documentation relating thereto; (ii) amounts
claimed and any other action or relief sought; and (iii) name of claimant and
all other parties to the claim, suit or proceeding;
(b) the name of each court or agency before which such claim,
suit or proceeding is pending;
(c) the date such claim, suit or proceeding was instituted;
and
(d) to the extent it is reasonably possible, a good faith
and reasonable estimate of the maximum amount in dispute, if any, which is
likely to become payable with respect to each such liability. If no estimate
is provided, the estimate shall for purposes of this Agreement be deemed to
be zero.
2.8 Accounts and Notes Receivable. The STOCKHOLDERS have delivered
to CONDOR an accurate list (which is set forth on Schedule 2.8) of the
accounts and notes receivable of POWERCREW as of the Balance Sheet Date,
including any such amounts which are not reflected in the balance sheet as of
the Balance Sheet Date, and including receivables from and advances to
employees and the STOCKHOLDERS. Except to the extent reflected on Schedule
2.8 or as disclosed to CONDOR in a writing accompanying the A/R Aging
Reports, as the case may be, the accounts, notes and other receivables shown
on Schedule 2.8 and on the A/R Aging Reports are and shall be, and the
STOCKHOLDERS have no reason to believe that any such account receivable is
not or shall not be, collectible in the amounts shown (in the case of the
accounts and notes receivable set forth on Schedule 2.8, net of reserves
reflected in the balance sheet calculated consistent with the reserves as of
the Balance Sheet Date).
2.9 Intellectual Property; Permits and Intangibles.
(a) POWERCREW owns or has licenses to all Intellectual
Property the absence of any of which would have a Material Adverse Effect on
POWERCREW, and POWERCREW has delivered to CONDOR an accurate list (which is
set forth on Schedule 2.9(a)) of all Intellectual Property owned by
POWERCREW. Each item of Intellectual Property owned by or licensed by
POWERCREW is valid and in full force and effect. Except as set forth on
Schedule 2.9(a), all right, title and interest in and to each item of
Intellectual Property owned by POWERCREW is not subject to any license,
royalty arrangement or pending or threatened claim or dispute. To POWERCREW's
knowledge, none of the Intellectual Property owned by or licensed by
POWERCREW nor any product sold or licensed by POWERCREW, infringes any
Intellectual Property right of any other entity and to POWERCREW's knowledge,
no Intellectual Property owned by POWERCREW is infringed upon by any other
entity. Except as specifically provided in Schedule 2.9(a) or 2.9(b), the
transactions contemplated by this Agreement will not (i) to POWERCREW's
knowledge, result in the infringement by POWERCREW of any Intellectual
Property right of any other entity, (ii) infringe any Intellectual Property
listed on Schedule 2.9(a), or (iii) result in a default under or a breach or
violation of, or adversely affect the rights and benefits afforded to
POWERCREW by, any licenses, franchises, permits or government authorizations
listed on Schedule 2.9(b).
(b) POWERCREW holds all licenses, franchises, permits and
other governmental authorizations (which other government authorizations are
required by law) the absence of any of which
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could have a Material Adverse Effect on POWERCREW, and POWERCREW has
delivered to CONDOR an accurate list and description (which is set forth on
Schedule 2.9(b)) of all governmental licenses, franchises, permits and other
governmental authorizations, including permits, titles, licenses, franchises
and certificates (it being understood that a list of all environmental
permits and other environmental approvals is set forth on Schedule 2.10). The
licenses, franchises, permits and other governmental authorizations listed on
Schedule 2.9(b) and Schedule 2.10 are valid, and POWERCREW has not received
any notice that any Governmental Authority intends to cancel, terminate or
not renew any such license, franchise, permit or other governmental
authorization. POWERCREW has conducted and is conducting its business in
compliance with the requirements, standards, criteria and conditions set
forth in the licenses, franchises, permits and other governmental
authorizations listed on Schedule 2.10 and is not in violation of any of the
foregoing except where such non-compliance or violation would not have a
Material Adverse Effect on POWERCREW.
2.10 Environmental Matters.
(a) Except as set forth on Schedule 2.10,
(i) POWERCREW is and at all times has been in
compliance in all material respects with, and has not been in violation of or
liable under, all Environmental Requirements, and
(ii) POWERCREW possesses all permits, licenses and
certificates required by all Environmental Requirements, and has filed all
notices or applications required thereby.
As used herein, "Environmental Requirements" shall mean all applicable
federal, state and local laws, rules, regulations, ordinances and
requirements relating to pollution and protection of the environment, all as
amended to date.
(b) Except as disclosed on Schedule 2.10:
(i) POWERCREW has not been subject to, or received
any notice of any private, administrative or judicial action, or notice of
any intended private, administrative or judicial action relating to the
presence or alleged presence of Hazardous Materials in, under or upon any
real property currently or formerly owned, leased or used by (A) POWERCREW or
(B) any other person that has, at any time, disposed of Hazardous Materials
on behalf of POWERCREW;
(ii) POWERCREW does not have any basis for any such
notice or action; and
(iii) there are no pending or, to the knowledge of
POWERCREW, threatened actions or proceedings (or notices of potential actions
or proceedings) from any Governmental Authority or any other entity regarding
any matter relating to health, safety or protection of the environment
against POWERCREW.
"Hazardous Materials" for purposes of this Agreement shall include, without
limitation: (A) hazardous materials, hazardous substances, extremely
hazardous substances or hazardous wastes, as those terms
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are defined by the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. ss.9601 et seq. ("CERCLA"), the Resource
Conservation and Recovery Act, 42 U.S.C. ss.6901 et seq. ("RCRA"), and any
other Environmental and Safety Requirements; (B) petroleum, including,
without limitation, crude oil or any fraction thereof which is liquid at
standard conditions of temperature and pressure (60 degrees Fahrenheit and
14.7 pounds per square inch absolute); (C) any radioactive material,
including, without limitation, any source, special nuclear, or by-product
material as defined in 42 U.S.C. ss. 2011 et seq.; and (D) asbestos in any
form or condition.
(c) There are and have been no past or present events,
conditions, circumstances, activities, practices, incidents or actions which
could reasonably be expected to interfere with or prevent continued
compliance with any Environmental Requirements, give rise to any legal
obligation or liability, or otherwise form the basis of any claim, action,
suit, proceeding, hearing or investigation against or involving POWERCREW
under any Environmental Requirements or related common law theories except as
identified on Schedule 2.10.
(d) Schedule 2.10 sets forth the name and address of every
off-site waste disposal organization, and each of the haulers, transporters
or cartage organization engaged now or in the preceding three years by
POWERCREW to dispose of Hazardous Materials to any such off-site waste
disposal location on behalf of POWERCREW or any of its predecessors.
2.11 Personal Property. POWERCREW has delivered to CONDOR an
accurate list (which is set forth on Schedule 2.11) of (a) all personal
property with a fair market value individually in excess of $5,000 which is
included (or that will be included) in "depreciable plant, property and
equipment" (or similarly named line item) on the balance sheet of POWERCREW
as of the Balance Sheet Date, (b) all other personal property owned by
POWERCREW with a value individually in excess of $5,000 (i) as of the Balance
Sheet Date and (ii) acquired since the Balance Sheet Date and (c) all leases
and agreements in respect of personal property with a value individually in
excess of $5,000, including, in the case of each of (a), (b) and (c), (1)
true, complete and correct copies of all such leases which have been provided
to CONDOR's counsel, (2) a listing of the capital costs of all such assets
which are subject to capital leases and (3) an indication as to which assets
are currently owned, or, to POWERCREW's knowledge, were formerly owned, by
the STOCKHOLDERS or other Affiliates of POWERCREW. Except as set forth on
Schedule 2.11, (i) all personal property with a value individually in excess
of $5,000 used by POWERCREW in its business is either owned by POWERCREW or
leased by POWERCREW pursuant to a lease included on Schedule 2.11, (ii) all
of the personal property listed on Schedule 2.11 is in good working order and
condition, ordinary wear and tear excepted, and (iii) all leases and
agreements included on Schedule 2.11 are in full force and effect and
constitute valid and binding agreements of POWERCREW, and to POWERCREW's
knowledge, of the other parties (and their successors) thereto in accordance
with their respective terms.
2.12 Significant Customers; Material Contracts and Commitments.
POWERCREW has delivered to CONDOR an accurate list (which is set forth on
Schedule 2.12) of all significant customers, it being understood and agreed
that a "significant customer," for purposes of this Section 2.12, means a
customer (or Person or entity) representing 5% or more of POWERCREW's annual
revenues as of the Balance Sheet Date. Except to the extent set forth on
Schedule 2.12, none of POWERCREW's significant customers has canceled or
substantially reduced or, to the knowledge of POWERCREW, is currently
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attempting or threatening to cancel, a contract or substantially reduce
utilization of the services provided by POWERCREW.
Except as listed or described on Schedule 2.12, as of or on the date
hereof, POWERCREW is not a party to or bound by, nor do there exist any,
contracts relating to or in any way affecting the operation or ownership of
POWERCREW's business that are of a type described below:
(a) any collective bargaining arrangement with any labor union
or any such agreement currently in negotiation or proposed;
(b) any contract for capital expenditures or the acquisition
or construction of fixed assets for or in respect of real property other than in
POWERCREW's ordinary course of business in excess of $5,000;
(c) any contract with a term in excess of one year for the
purchase, maintenance, acquisition, sale or furnishing of materials,
supplies, merchandise, machinery, equipment, parts or other property or
services (except that POWERCREW need not list any such contract made in the
ordinary course of business) which requires aggregate future payments of
greater than $5,000;
(d) any contract relating to the borrowing of money, or the
guaranty of another person's borrowing of money, including, without
limitation, all notes, mortgages, indentures and other obligations,
agreements and other instruments for or relating to any lending or borrowing,
including assumed indebtedness;
(e) any contract granting any person a lien on any of the
assets of POWERCREW, in whole or in part;
(f) any contract for the cleanup, abatement or other
actions in connection with Hazardous Materials (as defined in Section 2.10),
the remediation of any existing environmental liabilities or relating to the
performance of any environmental audit or study;
(g) any contract granting to any person a first-refusal,
first-offer or similar preferential right to purchase or acquire any of the
assets of POWERCREW's business other than in the ordinary course of business;
(h) any contract under which POWERCREW is
(i) a lessee or sublessee of any machinery,
equipment, vehicle or other tangible personal property or real property, or
(ii) a lessor of any real property or tangible
personal property owned by POWERCREW,
in either case having an original value in excess of $5,000;
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(i) any contract providing for the indemnification of any
officer, director, employee or other person, where such indemnification may
exceed the sum of $5,000;
(j) any joint venture or partnership contract; and
(k) any other contract with a term in excess of one year,
whether or not made in the ordinary course of business, which involves payments
in excess of $5,000.
POWERCREW has provided CONDOR with a true and complete copy of each written
Material Contract, including all amendments or other modifications thereto.
Except as set forth on Schedule 2.12, each Material Contract is a valid and
binding obligation of POWERCREW, enforceable against POWERCREW in accordance
with its terms, and is in full force and effect. Except as set forth on
Schedule 2.12, POWERCREW has performed all obligations required to be
performed by it under each Material Contract and neither POWERCREW nor, to
the knowledge of POWERCREW, any other party to any Contract, is (with or
without the lapse of time or the giving of notice or both) in breach or
default in any material respect thereunder; and there exists no condition
which, to the knowledge of POWERCREW, would constitute a breach or default
thereunder. POWERCREW has not been notified that any party to any Material
Contract intends to cancel, terminate, not renew or exercise an option under
any Material Contract, whether in connection with the transactions
contemplated hereby or otherwise. Except as set forth on Schedule 2.12, no
Material Contract is, or is expected to be, in an "overrun" (as defined in
Section 8.1 below) position.
2.13 Real Property. (a) Schedule 2.13(a) includes a list of all real
property owned by POWERCREW (i) as of the Balance Sheet Date and (ii)
acquired since the Balance Sheet Date, and all other real property, if any,
used by POWERCREW in the conduct of its business. POWERCREW has good and
insurable title to the real property owned by it, subject to no mortgage,
pledge, lien, conditional sale agreement, encumbrance or charge, except for:
(i) liens reflected on Schedule 2.7 or 2.12 as
securing specified liabilities (with respect to which no default by POWERCREW
exists);
(ii) liens for current taxes not yet due and payable
and assessments not in default;
(iii) easements for utilities serving the property
only; and
(iv) easements, covenants and restrictions and
other exceptions to title shown of record in the office of the county clerk
in which the properties, assets and leasehold estates are located which do
not adversely affect the current use of the property.
True, complete and correct copies of all title reports and title insurance
policies currently in possession of POWERCREW with respect to real property
owned by POWERCREW have been delivered to CONDOR.
(b) Schedule 2.13(b) includes an accurate list of real
property leases to which POWERCREW is a party and an indication as to which such
properties, if any, are currently owned, or were formerly owned, by the
STOCKHOLDERS or other Affiliates of POWERCREW. Counsel to
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CONDOR has been provided with true, complete and correct copies of all leases
and agreements in respect of such real property leased by POWERCREW. Except
as set forth on Schedule 2.13(b), all of such leases included on Schedule
2.13(b) are in full force and effect and constitute valid and binding
agreements of POWERCREW and, to POWERCREW's knowledge, of the parties (and
their successors) thereto in accordance with their respective terms.
2.14 Insurance.
(a) POWERCREW has delivered to CONDOR:
(i) true and complete copies of all policies of
insurance to which POWERCREW is a party or under which POWERCREW, or any
director of POWERCREW, is or has been covered by virtue of his employment at
POWERCREW at any time within two years preceding the date of this Agreement;
(ii) true and complete copies of all pending
applications for policies of insurance; and
(iii) any statement by the auditor of POWERCREW's
financial statements with regard to the adequacy of such entity's coverage or
of the reserves for claims.
(b) Schedule 2.14(b) describes:
(i) any self-insurance arrangement by or affecting
POWERCREW, including any reserves established thereunder; any contract or
arrangement, other than a policy of insurance, for the transfer or sharing of
any risk by POWERCREW; and
(ii) all obligations of POWERCREW to third parties
with respect to insurance (including such obligations under leases and
service agreements), and identifies the policy under which such coverage is
provided.
(c) Schedule 2.14(c) sets forth, by year, for the current
policy year and each of the preceding two policy years:
(i) a summary of the loss experience under
each policy;
(ii) a statement describing each claim under an
insurance policy for an amount in excess of $5,000, which sets forth:
(A) the name of the claimant;
(B) a description of the policy by
insurer, type of insurance and
period of coverage; and
(C) the amount and a brief description
of the claim; and
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(iii) a statement describing the loss experience
for all claims that were self-insured, including the number and aggregate
cost of such claims.
(d)
(i) All policies to which POWERCREW is a party or
that provide coverage to POWERCREW:
(A) are valid, outstanding and
enforceable;
(B) taken together, provide customary
insurance for the assets and the
operations of POWERCREW for all
risks normally insured against by a
person carrying on the same business
or businesses of POWERCREW;
(C) are sufficient for compliance with
all legal requirements and Material
Contracts to which POWERCREW is a
party or by which it is bound; and
(D) will continue in full force and
effect in favor of POWERCREW
following the Closing in accordance
with their respective terms;
(ii) POWERCREW has not received:
(A) any refusal of coverage or any
notice that a defense will be
afforded with reservation of rights,
or
(B) any notice of cancellation or any
other indication that any insurance
policy is no longer in full force or
effect or will not be renewed or
that the issuer of any policy is not
willing or able to perform its
obligations thereunder;
(iii) POWERCREW has paid all premiums due, and has
otherwise performed all of its obligations, under each policy to which it is a
party or that provides coverage to it or any director thereof
(iv) POWERCREW has given notice to the insurer of all
claims known by it to be insured thereby.
2.15 Compensation; Employment Agreements; Organized Labor Matters.
(a) POWERCREW has delivered to CONDOR an accurate list (which
is set forth on Schedule 2.15) showing all officers, directors and the key
employees of POWERCREW, listing all employment agreements with such officers,
directors and key employees and the rate of compensation (and the portions
thereof attributable to salary, bonus and other compensation, respectively) of
each of such persons as of (i) the Balance Sheet Date, and (ii) if different,
the date hereof. POWERCREW has provided to CONDOR true, complete and correct
copies of any employment agreements for persons listed on Schedule 2.15. Since
the Balance Sheet Date, there have been no increases in the compensation
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payable or any special bonuses to any officer, director, key employee or
other employee, except ordinary salary increases implemented on a basis
consistent with past practices.
(b) Except as set forth on Schedule 2.15, there is no, and
within the last three years POWERCREW has not experienced any, strike,
picketing, boycott, work stoppage or slowdown, other labor dispute, union
organizational activity, allegation, charge or complaint of unfair labor
practice, employment discrimination or other matters relating to the
employment of labor, pending or, to POWERCREW's knowledge, threatened against
POWERCREW; nor is there, to the knowledge of POWERCREW, any basis for any
such allegation, charge or complaint. There is no request directed to
POWERCREW for union or similar representation pending and, to POWERCREW's
knowledge, no question concerning representation has been raised. To
POWERCREW's knowledge, no key employee and no group of employees has any
plans to terminate employment with POWERCREW. POWERCREW has complied in all
material respects with all applicable laws relating to the employment of
labor, including provisions thereof relating to wages, hours, equal
opportunity, collective bargaining and the payment of social security and
other taxes. POWERCREW is not liable for any arrearages of wages or any taxes
or penalties for failure to comply with any such laws, ordinances or
regulation.
2.16 Employee Plans. POWERCREW has delivered to CONDOR an accurate
listing (which is set forth on Schedule 2.16) showing all Benefit Plans of
POWERCREW, together with true, complete and correct copies of such Benefit
Plans, agreements and any trusts related thereto, and classifications of
employees covered thereby as of the Balance Sheet Date. POWERCREW is not
required to contribute to any Benefit Plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions of
employment of any of POWERCREW's employees.
2.17 Compliance with ERISA. Except as set forth on Schedule 2.17,
all Benefit Plans that are intended to qualify under Section 401(a) of the
Code are and have been so qualified and have been determined by the Internal
Revenue Service to be qualified in form, and copies of such determination
letters have been delivered to CONDOR's counsel. Except as set forth on
Schedule 2.17, all reports and other documents required to be filed with any
Governmental Authority or distributed to plan participants or beneficiaries
(including, but not limited to, actuarial reports, audits or tax returns)
have been timely filed or distributed, and copies thereof have been provided
to CONDOR. Except as set forth on Schedule 2.17, neither the STOCKHOLDERS,
any such Benefit Plan, POWERCREW, nor any "disqualified person" or "party in
interest" as such terms are defined in Section 4975 of the Code or Section
3(14) of ERISA has engaged in any transaction prohibited under the provisions
of Section 4975 of the Code or Section 406 of ERISA. Except as set forth on
Schedule 2.17, no Benefit Plan has incurred an accumulated funding
deficiency, as defined in Section 412(a) of the Code and Section 302(1) of
ERISA, and POWERCREW has not incurred any liability for excise tax or penalty
due to the Internal Revenue Service nor any liability to the PBGC. The
STOCKHOLDERS further represent, except as set forth on Schedule 2.17, that:
(a) There have been no terminations, partial terminations
or discontinuance of contributions to any such Benefit Plan intended to
qualify under Section 401 (a) of the Code without notice to and approval by
the Internal Revenue Service;
(b) No such Benefit Plan subject to the provisions of Title
IV of ERISA has been terminated;
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(c) There have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any Benefit Plan;
(d) POWERCREW has not incurred liability under Section 4062
of ERISA;
(e) No circumstances exist pursuant to which POWERCREW
could have any direct or indirect liability whatsoever (including, but not
limited to, any liability to any multi-employer plan or the PBGC under Title
IV of ERISA or to the Internal Revenue Service for any excise tax or penalty,
or being subject to any statutory lien to secure payment of any such
liability) with respect to any Benefit Plan now or heretofore maintained or
contributed to by any entity other than POWERCREW that is, or at any time
was, a member of a "controlled group" (as defined in Section 412(n)(6)(B) of
the Code) that includes POWERCREW;
(f) POWERCREW is not now, nor can it as a result of its
past activities become, liable to the PBGC or to any multi-employer employee
pension benefit plan under the provisions of Title IV of ERISA;
(g) All Benefit Plans and the administration thereof are in
substantial compliance with their terms and all applicable provisions of
ERISA and the regulations issued thereunder, as well as with all other
applicable federal, state and local statutes, ordinances and regulations;
(h) All accrued contribution obligations of POWERCREW with
respect to any Benefit Plan have either been fulfilled in their entirety or
are fully reflected on the balance sheet of POWERCREW as of the Balance Sheet
Date.
(i) No claim, lawsuit, arbitration or other action has been
threatened, asserted, or instituted against any Benefit Plan or related
trust, any trustee or fiduciaries thereof, POWERCREW, or any director,
officer or employee thereof;
(j) No Benefit Plan is under audit or investigation by any
Governmental Authority and no such completed audit, if any, has resulted in
the imposition of any tax or penalty;
(k) Each Benefit Plan intended to meet requirements for
tax-favored treatment under Sections 79, 106, 117, 120, 125, 127, 129 or 132
of the Code satisfies the applicable requirements under the Code;
(l) With respect to each Benefit Plan that is funded fully
or partially through an insurance policy, POWERCREW has no liability in the
nature of retroactive rate adjustment, loss sharing arrangement or other
actual or contingent liability arising wholly or partially out of events
occurring on or before the Balance Sheet Date;
(m) The consummation of the transactions contemplated by
this Agreement will not give rise to any liability, including, without
limitation, liability for severance pay, unemployment compensation or
termination pay, or accelerate the time of payment or vesting or increase the
amount of compensation or
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benefits due to any current, former, or retired employee or their
beneficiaries solely by reason of such transactions;
(n) Neither POWERCREW nor any member of a "controlled
group" which includes POWERCREW maintains, contributes to, or in any way
provides for any benefits of any kind whatsoever (other than under Section
4980B of the Code or Title I, Subtitle B, Part 6 of ERISA, the federal Social
Security Act or a plan qualified under Section 401(a) of the Code) to any
current or future retiree or terminated employee;
(o) Neither POWERCREW nor any officer or employee thereof,
has made any promises or commitments, whether legally binding or not, to
create any additional plan, agreement or arrangement, or to modify or change
any existing Benefit Plan; and
(p) POWERCREW has complied in all respects with the
requirements of Section 4980B of the Code and Title I, Subtitle B, Part 6 of
ERISA.
2.18 Conformity with Law; Litigation. Except as set forth on
Schedule 2.10 or Schedule 2.18, POWERCREW has complied with all laws, rules,
regulations, writs, injunctions, decrees, and orders applicable to it or to
the operation of its Business (collectively, "Laws") and has not received any
notice of any alleged claim or threatened claim, violation of, liability or
potential responsibility under, any such Law which has not heretofore been
cured and for which there is no remaining liability other than, in each case,
those not having a Material Adverse Effect on POWERCREW. Without limiting the
generality of the foregoing, POWERCREW has complied with all applicable
federal, state and local Laws relating to antitrust and trade regulations.
Except to the extent set forth on Schedule 2.7 or Schedule 2.10 or
as set forth on Schedule 2.18 (which shall disclose the parties to, nature
of, and relief sought for each matter to be disclosed on Schedule 2.18):
(a) There is no suit, action, proceeding, claim, order or,
to POWERCREW's knowledge, investigation pending or, to POWERCREW's knowledge,
threatened against either POWERCREW or any Benefit Plan, or any fiduciary of
any such Benefit Plan or, to the knowledge of POWERCREW, pending or
threatened against any of the officers, directors or employees of POWERCREW
with respect to its business or proposed business activities or to which
POWERCREW is otherwise a party, which would have a Material Adverse Effect on
POWERCREW, before any court, or before any Governmental Authority
(collectively, "Claims"); nor, to POWERCREW's knowledge, is there any basis
for any such Claims.
(b) POWERCREW is not subject to any judgment, order or
decree of any court or Governmental Authority; POWERCREW has not received any
opinion or memorandum from legal counsel to the effect that it is exposed,
from a legal standpoint, to any liability or disadvantage which may be
material to its business. POWERCREW is not engaged in any legal action to
recover monies due it or for damages sustained by it.
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(c) POWERCREW's current insurance is adequate to cover all
pending or threatened Claims, POWERCREW has given all required notice of such
Claims to its appropriate insurance carrier(s) and/or all such claims have
been fully reserved for on the Financial Statements. Schedule 2.18 lists the
insurer for each Claim covered by insurance or designates each Claim, or
portion of each Claim, as uninsured and the individual and aggregate policy
limits for the insurance covering each insured Claim and the applicable
policy deductibles for each insured Claim.
Schedule 2.18 sets forth all closed litigation matters to which POWERCREW was
a party during the three years preceding the Closing, the date such
litigation was commenced and concluded, and the nature of the resolution
thereof (including amounts paid in settlement or judgment).
2.19 Taxes. Except as set forth on Schedule 2.19:
(a) All Returns required to have been filed by or with
respect to POWERCREW have been duly filed, and each such Return correctly and
completely reflects the Tax liability and all other information required to
be reported thereon. All Taxes with respect to items or periods covered by
all such Returns (whether or not shown on any Return) owed by POWERCREW have
been paid or are being contested in good faith with adequate reserves
therefor.
(b) The provisions for Taxes due by POWERCREW in the
Financial Statements, if any, are sufficient for all unpaid Taxes, being
current taxes not yet due and payable, of POWERCREW.
(c) POWERCREW is not a party to any agreement extending the
time within which to file any Return. No claim has ever been made by any
Taxing Authority in a jurisdiction in which POWERCREW does not file Returns
that it is or may be subject to taxation by that jurisdiction that is
unresolved or if adversely determined would have a Material Adverse Effect on
POWERCREW.
(d) POWERCREW has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, creditor, independent contractor or other third party.
(e) There is no dispute or claim concerning any Tax
liability of POWERCREW either (i) claimed or raised by any Taxing Authority
or (ii) otherwise known to POWERCREW. No issues have been raised in any
examination by any Taxing Authority with respect to POWERCREW which, by
application of similar principles, reasonably could be expected to result in
a proposed deficiency for any other period not so examined. Schedule 2.19(e)
lists all federal, state, local and foreign income Tax Returns filed by
POWERCREW for all taxable periods ended on or after January 1, 1991,
indicates those Returns, if any, that have been audited, and indicates those
Returns that currently are the subject of audit. POWERCREW has delivered to
CONDOR complete and correct copies of all federal, state, local and foreign
income Tax Returns filed by, and all Tax examination reports and statements
of deficiencies assessed against or agreed to by, POWERCREW since January 1,
1991.
(f) POWERCREW has not waived any statute of limitations,
the waiver of which remains in effect on the date hereof, in respect of Taxes
or agreed to any extension of time with respect to any Tax assessment or
deficiency.
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(g) POWERCREW has not made any payments, is not obligated
to make any payments, and is not a party to any agreement that under certain
circumstances could require it to make any payments, that are not deductible
(i) under Section 280G of the Code or (ii) as compensation under Section
162(m) of the Code or any similar provision under state and/or local law.
(h) POWERCREW is not a party to any Tax allocation or
sharing agreement.
(i) POWERCREW is not a party to any joint venture,
partnership or other arrangement that is treated as a partnership for federal
income Tax purposes.
(j) To POWERCREW's and the STOCKHOLDERS' knowledge, the
Internal Revenue Service has not proposed or threatened accounting method
changes of POWERCREW that could give rise to an adjustment under Section 481
of the Code for periods after the Closing Date.
(k) POWERCREW has not received any written ruling of a
Taxing Authority related to Taxes or entered into any written and legally
binding agreement with a Taxing Authority relating to Taxes.
(l) POWERCREW has disclosed (in accordance with Section
6662(d)(2)(B)(ii) of the Code) on its federal income Tax Returns all
positions taken therein that could give rise to a substantial understatement
of federal income Tax within the meaning of Section 6662(d) of the Code.
(m) POWERCREW is a "small business corporation" within the
meaning of Subchapter S of the Code and has maintained a valid election to be
an "S corporation" under Subchapter S of the Code and the equivalent
provisions of all applicable state income tax statutes since February 15,
1992.
For purposes of this Section 2.19, the following
definitions shall apply:
"Returns" means any returns, reports or statements
(including any information returns) required to be filed for purposes of a
particular Tax with any Taxing Authority or Governmental Authority.
"Tax" or "Taxes" means all federal, state, local or foreign
net or gross income, gross receipts, net proceeds, sales, use, ad valorem,
value added, franchise, bank shares, withholding, payroll, employment,
excise, property, deed, stamp, alternative or add-on minimum, environmental
or other taxes, assessments, duties, fees, levies or other governmental
charges similar to taxes, whether disputed or not, together with any
interest, penalties, additions to tax or additional amounts with respect
thereto.
"Taxing Authority" means any Governmental Authority, board,
bureau, body, department or authority of any United States federal, state or
local jurisdiction or any foreign jurisdiction, having jurisdiction with
respect to any Tax.
2.20 No Violations. POWERCREW is not in violation of any POWERCREW
Charter Document nor is POWERCREW in default under any Material Contract;
and, except as set forth on Schedule 2.20, (a) the rights and benefits of
POWERCREW under the Material Contracts will not be adversely affected by the
transactions contemplated hereby, and (b) the execution of this Agreement and
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the performance by STOCKHOLDERS of their obligations hereunder and the
consummation by the STOCKHOLDERS of the transactions contemplated hereby will
not (i) result in any violation or breach of, or constitute a default under,
any of the terms or provisions of the Material Contracts or the POWERCREW
Charter Documents, or (ii) require the consent, approval, waiver of any
acceleration, termination or other right or remedy or action of or by, or
make any filing with or give any notice to, any other party. Except as set
forth on Schedule 2.20, none of the Material Contracts requires notice to, or
consent or approval of, any Governmental Authority or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect and consummation of the transactions contemplated
hereby will not give rise to any right to termination, cancellation or
acceleration or loss of any material right or benefit. None of POWERCREW's
Material Contracts with customers permits the use or publication by POWERCREW
or CONDOR of the name of any other party to such Material Contracts. Except
as set forth on Schedule 2.20, none of the Material Contracts prohibits or
restricts POWERCREW from freely providing services to any other customer or
potential customer of POWERCREW.
2.21 Government Contracts. Except as set forth on Schedule 2.21,
POWERCREW is not a party to any governmental contract subject to price
redetermination or renegotiation.
2.22 Business Conduct. Except as set forth on Schedule 2.22, since
December 31, 1997, POWERCREW has conducted its business only in the ordinary
course consistent with past custom and practices and has incurred no
liabilities other than in the ordinary course of business consistent with
past custom and practices. Except as forth on Schedule 2.22, since December
31, 1997, there has not been any:
(a) Change in POWERCREW's operations, condition (financial
or otherwise), operating results, assets, liabilities, employee, customer or
supplier relations or business prospects which would have a Material Adverse
Effect on POWERCREW;
(b) Damage, destruction or loss of any property owned by
POWERCREW or used in the operation of the business, whether or not covered by
insurance, having a replacement cost or fair market value in excess of
$10,000 affecting POWERCREW's property, financial status or the Business;
(c) Voluntary or involuntary sale, transfer, surrender,
abandonment or other disposition of any kind by POWERCREW of any assets or
property rights (tangible or intangible), having a replacement cost or fair
market value in excess of $10,000, except in each case the sale of inventory
and collection of accounts in the ordinary course of business consistent with
past custom and practices;
(d) Loan or advance by POWERCREW to any party other than
sales to customers on credit in the ordinary course of business consistent
with past custom and practices;
(e) Declaration, setting aside, or payment of any dividend
or other distribution in respect to POWERCREW's capital stock, any direct or
indirect redemption, purchase, or other acquisition of such stock, or the
payment of principal or interest on any note, bond, debt instrument or debt
to any Affiliate;
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(f) Incurrence of debts, liabilities or obligations except
current liabilities incurred in connection with or for services rendered or
goods supplied in the ordinary course of business consistent with past custom
and practices, liabilities on account of taxes and governmental charges but not
penalties, interest or fines in respect thereof, and obligations or liabilities
incurred by virtue of the execution of this Agreement;
(g) Issuance by POWERCREW of any notes, bonds, or other debt
securities or any equity securities or securities convertible into or
exchangeable for any equity securities;
(h) Cancellation, waiver or release by POWERCREW of any debts,
rights or claims, except in each case in the ordinary course of business
consistent with past custom and practices;
(i) Amendment of POWERCREW's Articles or Certificate of
Incorporation or By-Laws;
(j) Amendment or termination of any Material Contract, other
than expiration of such contract in accordance with its terms;
(k) Change in accounting principles, methods or practices
(including, without limitation, any change in depreciation or amortization
policies or rates) utilized by POWERCREW;
(l) Discharge or satisfaction of any material liability,
encumbrance or payment of any material obligation or liability, other than
current liabilities paid in the ordinary course of business consistent with past
custom and practices or cancellation of any debts or claims;
(m) Sale or assignment by POWERCREW of any tangible assets
other than in the ordinary course of business;
(n) Capital expenditures or commitments therefor by POWERCREW
other than in the ordinary course of business in excess of $10,000 in the
aggregate;
(o) Charitable contributions or pledges by POWERCREW in excess
of $5,000 in the aggregate;
(p) Mortgage, pledge or other encumbrance of any asset of
POWERCREW other than in the ordinary course of business;
(q) Adoption, amendment or termination of any Benefit Plan;
(r) Increase in the benefits provided under any Benefit Plan;
or
(s) An occurrence or event not included in clauses (a) through
(r) that has resulted or might be expected to have a Material Adverse Effect on
POWERCREW.
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2.23 Deposit Accounts; Powers of Attorney. POWERCREW has delivered to
CONDOR an accurate schedule (which is set forth on Schedule 2.23) as of the date
of this Agreement of:
(a) the name of each financial institution in which POWERCREW
has accounts or safe deposit boxes;
(b) the names in which the accounts or boxes are held;
(c) the type of account and account number; and
(d) the name of each person authorized to draw thereon or have
access thereto.
Schedule 2.23 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from POWERCREW and a
description of the terms of such power of attorney.
2.24 Relations with Governments. POWERCREW has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office nor has it otherwise taken any action which
would cause POWERCREW to be in violation of the Foreign Corrupt Practices Act of
1977, as amended, or any law of similar effect.
2.25 Disclosure. The representations and warranties of the STOCKHOLDERS
contained in this Agreement, the schedules to this Agreement provided by the
STOCKHOLDERS, the certificates and the other documents furnished by the
STOCKHOLDERS to CONDOR pursuant hereto, taken as a whole, present fairly the
business and operations of POWERCREW for the time periods with respect to which
such information was requested. POWERCREW's rights under the documents delivered
pursuant hereto would not be materially adversely affected by, and no statement
made herein would be rendered untrue in any material respect by, any other
document to which POWERCREW is a party, or to which its properties are subject,
or by any other fact or circumstance regarding POWERCREW (which fact or
circumstance was, or should reasonably, after due inquiry, have been known to
the STOCKHOLDER) that is not disclosed pursuant hereto or thereto.
2.26 Prohibited Activities. Except as set forth on Schedule 2.26,
POWERCREW has not, between the Balance Sheet Date and the date hereof, taken any
of the actions set forth in Section 4.3.
2.27 Affiliate Transactions. Schedule 2.27 sets forth the parties to
and the date, nature and amount of (a) each transaction or series of similar
transactions (other than payments of salary and bonus which are reflected as
line items in the Financial Statements) involving the transfer of any cash,
property or rights in which the amount involved individually or collectively
exceeded $5,000 to or from POWERCREW from, to, or for the benefit of any
STOCKHOLDER, former stockholder, Affiliate or former Affiliate of POWERCREW
("Affiliate Transactions") during the period commencing January 1, 1994 through
the date hereof, and (b) any existing commitments of POWERCREW to engage in the
future in any Affiliate Transactions. Each Affiliate Transaction was effected on
terms equivalent to those which would have been established in an arm's-length
negotiation, except as disclosed on Schedule 2.27.
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2.28 HSR Compliance. POWERCREW is not engaged in manufacturing, has
less than $10 million in total assets, and has less than $100 million in annual
revenues (all as determined in accordance with the HSR Act).
2.29 Misrepresentation. None of the representations and warranties set
forth in this Agreement, the certificates and the other documents furnished to
CONDOR pursuant hereto, taken as a whole, contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
contained herein or therein not misleading.
2.30 Authority; Ownership. STOCKHOLDERS have the full legal right,
power and authority to enter into this Agreement. The STOCKHOLDERS own
beneficially and of record all of the shares of POWERCREW Stock and such
POWERCREW Stock is owned free and clear of all liens, security interests,
pledges, charges, voting trusts, restrictions, encumbrances and claims of every
kind.
2.31 Preemptive Rights. STOCKHOLDERS do not have, or hereby waive, any
preemptive or other right to acquire shares of POWERCREW Stock that the
STOCKHOLDERS have or may have had.
3. REPRESENTATIONS OF CONDOR
CONDOR represents and warrants to STOCKHOLDERS that all of the
following representations and warranties in this Section 3 are true and correct
at the date of this Agreement and shall be true and correct on the Closing Date,
and that such representations and warranties shall survive the Closing Date for
a period of eighteen months.
3.1 Due Organization. CONDOR is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware,
and is duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now conducted, to own or hold under
lease the properties and assets it now owns or holds under lease, and to perform
all of its obligations under any material agreement to which it is a party or by
which its properties are bound. True, complete and correct copies of the
Certificate of Incorporation and By-Laws, each as amended, of CONDOR (the
"CONDOR Charter Documents") are attached to the Secretary's Certificate
delivered to the STOCKHOLDERS in accordance with Section 5.6 hereof.
3.2 Authorization. The representatives of CONDOR executing this
Agreement have the authority to execute and deliver this Agreement and to bind
CONDOR to perform its obligations hereunder. The execution and delivery of this
Agreement by CONDOR and the performance by CONDOR of its obligations under this
Agreement and the consummation by CONDOR of the transactions contemplated hereby
have been, or will have been on or before the date of the Closing, duly
authorized by all necessary corporate action in accordance with applicable law
and the Certificate of Incorporation and By-Laws of CONDOR. Each share of CONDOR
Stock to be issued to the STOCKHOLDERS on the Closing Date will be duly and
validly authorized and issued, free and clear of all liens, claims and other
encumbrances and fully paid and nonassessable. This Agreement constitutes the
valid and binding obligation of CONDOR, enforceable in accordance with its
terms.
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3.3 Transaction Not a Breach. Neither the execution and delivery of
this Agreement by CONDOR nor its performance will violate, conflict with, or
result in a breach of any provision of any Law, rule, regulation, order, permit,
judgment, injunction, decree or other decision of any court or other tribunal or
any Governmental Authority binding on CONDOR or conflict with or result in the
breach of any of the terms, conditions or provisions of the Certificate of
Incorporation or the By-Laws of CONDOR or of any contract, agreement, mortgage
or other instrument or obligation of any nature to which CONDOR is a party or by
which CONDOR is bound.
3.4. Delivery of Documents; Securities Law Matters. CONDOR has made
available to the STOCKHOLDERS its (a) 1997 Annual Report on Form 10-K, and (b)
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998
(collectively, the "CONDOR Commission Reports"). As of their respective dates,
the CONDOR Commission Reports did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Since February 5, 1998, CONDOR has filed
all forms, reports and documents with the SEC required to be filed by it
pursuant to the 1933 Act and the 1934 Act and the rules and regulations
promulgated thereunder, each of which complied as to form, at the time such
form, document or report was filed, in all material respects with the applicable
requirements of the 1933 Act and the 1934 Act and the applicable rules and
regulations promulgated thereunder.
3.5. Misrepresentation. None of the representations and warranties set
forth in this Agreement or in any of the certificates, schedules, exhibits,
lists, documents, exhibits, or other instruments delivered, or to be delivered,
to the STOCKHOLDERS as contemplated by any provision hereof, contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading.
4. COVENANTS PRIOR TO CLOSING
4.1 Access and Cooperation; Due Diligence.
(a) Between the date of this Agreement and the Closing Date,
POWERCREW will afford to the officers and authorized representatives of CONDOR
access during business hours and upon twenty-four (24) hours' advance notice to
all of POWERCREW's sites, properties, books and records and will furnish CONDOR
with such additional financial and operating data and other information as to
the business and properties of POWERCREW as CONDOR may from time to time
reasonably request. POWERCREW will cooperate with CONDOR and its
representatives, including CONDOR's auditors and counsel, in the preparation of
any documents or other materials which may be required in connection with the
transactions contemplated by this Agreement. CONDOR and the STOCKHOLDERS will
treat all information obtained in connection with the negotiation and
performance of this Agreement as confidential in accordance with the provisions
of Section 10.
(b) CONDOR will cooperate with POWERCREW, its representatives,
auditors and counsel in the preparation of any documents or other material which
may be required in connection with the transactions contemplated by this
Agreement. POWERCREW will cause all information obtained in
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connection with the negotiation and performance of this Agreement to be
treated as confidential in accordance with the provisions of Section 10.
4.2 Conduct of Business Pending Closing. Between the date of this
Agreement and the Closing Date, POWERCREW will:
(a) carry on its business in the ordinary course substantially
as conducted heretofore and not introduce any new method of management,
operation or accounting;
(b) maintain its properties and facilities, including those
held under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(c) perform in all material respects its obligations under
agreements relating to or affecting its assets, properties or rights;
(d) keep in full force and effect present insurance policies
or other comparable insurance coverage;
(e) maintain and preserve its business organization intact and
use its best efforts to retain its present key employees and relationships with
suppliers, customers and others having business relations with POWERCREW;
(f) maintain compliance with all permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar Governmental Authorities; and
(g) maintain present debt and lease instruments in accordance
with their respective terms and not enter into new or amended debt or lease
instruments, provided that debt and/or lease instruments may be replaced if such
replacement instruments are on terms at least as favorable to POWERCREW as the
instruments being replaced.
4.3 Prohibited Activities. Between the date hereof and the Closing
Date, except as specifically contemplated hereby, POWERCREW will not, without
the prior written consent of CONDOR, which consent shall not be unreasonably
withheld or delayed:
(a) make any change in its Certificate or Articles of
Incorporation or By-Laws;
(b) grant or issue any securities, options, warrants, calls,
conversion rights or commitments of any kind relating to its securities of any
kind;
(c) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase, redeem
or otherwise acquire or retire for value any shares of its stock;
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(d) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditure, except if it is in the
ordinary course of business (consistent with past practice) or involves an
amount not in excess of $5,000;
(e) create, assume or permit to exist any mortgage, pledge or
other lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (i) with respect to purchase money liens incurred in
connection with the acquisition of equipment with an aggregate cost not in
excess of $5,000 necessary or desirable for the conduct of the business of
POWERCREW, (ii)(A) liens for Taxes either not yet due or being contested in good
faith and by appropriate proceedings (and for which adequate reserves have been
established and are being maintained) or (B) materialmen's, mechanics',
workers', repairmen's, employees' or other like liens arising in the ordinary
course of business (the liens set forth in clause (ii) being referred to herein
as "Statutory Liens"), or (iii) liens set forth on Schedule 2.7 or 2.12 hereto;
(f) sell, assign, lease or otherwise transfer or dispose of
any property or equipment except in the ordinary course of business;
(g) negotiate for the acquisition of any business or the
start-up of any new business;
(h) merge or consolidate or agree to merge or consolidate with
or into any other corporation;
(i) waive any material right or claim of POWERCREW, provided
that POWERCREW may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice, provided,
further, that such adjustments shall not be deemed to be included on Schedule
2.8 unless specifically listed thereon;
(j) commit a material breach, materially amend or terminate
any Material Contract;
(k) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder; or
(l) except in the ordinary course of business or as required
by Law or contractual obligations, POWERCREW will not (i) increase in any manner
the base compensation of, or enter into any new bonus or incentive agreement or
arrangement with, any of the employees engaged in POWERCREW's business, (ii) pay
or agree to pay any additional pension, retirement allowance or other employee
benefit to any such employee, whether past or present, (iii) enter into any new
employment, severance, consulting, or other compensation agreement with any
existing employee engaged in POWERCREW's business, (iv) amend or enter into a
new Plan (except as required by Law) or amend or enter into a new collective
bargaining agreement, or (v) engage in any Affiliate Transaction.
4.4 No Shop. In consideration of the substantial expenditure of time,
effort and expense undertaken by CONDOR in connection with its due diligence
review and the preparation and execution of this Agreement, the STOCKHOLDERS
agree that neither they nor their representatives, agents, employees or
affiliates will, after the execution of this Agreement until the earlier of (a)
the termination of
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this Agreement, or (b) the Closing, directly or indirectly, solicit,
encourage, negotiate or discuss with any third party (including by way of
furnishing any information concerning POWERCREW) any acquisition proposal
relating to or affecting POWERCREW or any part of it, or any direct or
indirect interests in POWERCREW, whether by purchase of assets or stock,
purchase of interests, merger or other transaction ("Acquisition
Transaction"), and that the STOCKHOLDERS will promptly advise CONDOR of the
terms of any communications the STOCKHOLDERS or POWERCREW may receive or
become aware of relating to any bid for all or any part of POWERCREW.
4.5 Agreements. Except as set forth on Schedule 6.7, on or prior to the
Closing Date, the STOCKHOLDERS and POWERCREW shall terminate (a) any
stockholders' agreements, voting agreements, voting trusts, options, warrants
and employment agreements between POWERCREW and any of the STOCKHOLDERS, and (b)
any existing agreement between POWERCREW and any of the STOCKHOLDERS. A list of
such agreements to be terminated is set forth on Schedule 4.5 and copies of each
such agreement to be terminated have been provided to counsel for CONDOR.
4.6 Notification of Certain Matters. The STOCKHOLDERS shall give prompt
notice to CONDOR of (a) the occurrence or non-occurrence of any event of which
POWERCREW or the STOCKHOLDERS have knowledge, the occurrence or non-occurrence
of which would cause any representation or warranty of the STOCKHOLDERS
contained herein to be untrue or inaccurate in any material respect at or prior
to the Closing, and (b) any material failure of the STOCKHOLDERS to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
hereunder. CONDOR shall give prompt notice to the STOCKHOLDERS of (a) the
occurrence or non-occurrence of any event of which CONDOR has knowledge, the
occurrence or non-occurrence of which would cause any representation or warranty
of CONDOR contained herein to be untrue or inaccurate in any material respect at
or prior to the Closing, and (b) any material failure of CONDOR to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder. The delivery of any notice pursuant to this Section 4.6 shall
not be deemed to (a) modify the representations or warranties hereunder of the
party delivering such notice, which modification may only be made pursuant to
Section 4.7, (b) modify the conditions set forth in Sections 5 and 6, or (c)
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
4.7 Amendment of Schedules. Each party hereto agrees that, with respect
to the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing Date to
supplement or amend promptly the Schedules hereto with respect to any matter
hereafter arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the
Schedules; provided, however, that supplements and amendments to Schedules 2.7,
2.8, 2.11 and 2.12 shall only have to be delivered at the Closing Date, unless
such Schedule is to be amended to reflect an event occurring other than in the
ordinary course of business. No supplement or amendment to a Schedule shall be
deemed to cure any breach of any representation and warranty by either party
made in this Agreement, provided that if the party to whom a supplemental or
amending disclosure was made proceeds to Closing, that party shall be deemed to
have waived such breach of representation and warranty and any remedies which
might have been available with respect thereto.
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4.8 Final Financial Statements. POWERCREW shall provide prior to the
Closing Date, and CONDOR shall have had sufficient time prior thereto to review,
the unaudited statements of income, cash flows and retained earnings of
POWERCREW for all months ended no earlier than 30 days prior to the Closing
Date, disclosing no material adverse change in the financial condition of
POWERCREW or the results of its operations from the financial statements as of
the Balance Sheet Date. Such financial statements shall have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
indicated (except as noted therein), but shall not include all of the footnotes
and adjustments required by GAAP for complete financial statements. Except as
noted in such financial statements, all of such financial statements will
present fairly the results of operations of POWERCREW for the periods indicated
thereon.
4.9. Prospectus; Registration Statement. CONDOR has delivered to
POWERCREW and the STOCKHOLDERS a Prospectus with respect to the shares of CONDOR
Stock to be issued to the STOCKHOLDERS as part of the Purchase Price. CONDOR
shall take any action required to be taken under state blue sky or securities
laws in connection with the issuance of the CONDOR Stock as part of the Purchase
Price. CONDOR and POWERCREW will furnish each other with all information
concerning themselves, their subsidiaries, directors, officers and stockholders
or shareholders and such other matters as may be necessary or advisable for any
filings under any Blue Sky laws and any other statement or application made by
or on behalf of CONDOR or POWERCREW to any governmental body in connection with
the transactions contemplated by this Agreement.
4.10. The Nasdaq Stock Market Additional Shares Notification. CONDOR
will file an additional shares notification with The Nasdaq Stock Market to
approve for listing, subject to official notice of its issuance, the shares of
CONDOR Stock to be issued in connection herewith. CONDOR shall exercise
reasonable good faith efforts to cause the shares of CONDOR Stock to be issued
as part of the Purchase Price to be approved for listing on The Nasdaq Stock
Market, subject to official notice of issuance, prior to the Closing Date.
4.11. Further Assurances. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or convenient
to carry out the transactions contemplated hereby.
4.12. Employee Bonuses. POWERCREW has committed to pay bonuses (the
"Employee Bonuses") to the employees and in the amounts set forth on Schedule
4.11 hereto, which Employee Bonuses have been reflected on the books and records
of POWERCREW. Immediately prior to the Closing, CONDOR shall pay into POWERCREW
funds adequate to pay the Employee Bonuses by electronic funds transfer.
POWERCREW shall use the funds so paid to pay the Employee Bonuses.
5. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS
The obligations of the STOCKHOLDERS with respect to actions to be taken
on the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the conditions set forth in this Section 5. As of the
Closing Date, all conditions not satisfied shall be deemed to have been waived
by the STOCKHOLDERS unless they have objected by notifying CONDOR in writing of
such objection on or before the consummation of the transactions on the Closing
Date, except that no such waiver shall be
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deemed to affect the survival of the representations and warranties of CONDOR
contained in Section 3 hereof.
5.1 Representations and Warranties. All representations and warranties
of CONDOR contained in the Agreement shall be true and correct in all material
respects as of the Closing Date as though such representations and warranties
had been made on and as of that date; and a certificate to the foregoing effect
dated the Closing Date and signed by the President or any Vice President of
CONDOR shall have been delivered to the STOCKHOLDER.
5.2 Performance of Obligations. All of the terms, covenants and
conditions of this Agreement to be complied with and performed by CONDOR on or
before the Closing Date shall have been duly complied with and performed in all
material respects on or before the Closing Date; and certificates to the
foregoing effect dated on the Closing Date and signed by the President or any
Vice President of CONDOR shall have been delivered to the STOCKHOLDERS.
5.3 No Litigation. No action or proceeding before a court or any other
Governmental Authority or body shall have been instituted or threatened to
restrain or prohibit the performance of this Agreement or the consummation of
the transactions contemplated herein.
5.4 Consents and Approvals. All necessary consents of and filings
required to be obtained or made by CONDOR with any Governmental Authority or
agency relating to the consummation of the transactions contemplated herein
shall have been obtained and made.
5.5 Good Standing Certificates. CONDOR shall have delivered to the
STOCKHOLDERS a certificate, dated as of a date no earlier than 10 days prior to
the Closing Date, duly issued by the Delaware Secretary of State, showing that
CONDOR is in good standing.
5.6 Secretary's Certificate. The STOCKHOLDERS shall have received a
certificate or certificates, dated the Closing Date and signed by the corporate
secretary of CONDOR, certifying the truth and correctness of attached copies of
the CONDOR's Certificate of Incorporation (including amendments thereto),
By-Laws (including amendments thereto), and resolutions of the boards of
directors approving CONDOR's entering into this Agreement and the consummation
of the transactions contemplated hereby.
5.7 CONDOR's Closing Documents. CONDOR shall have executed and
delivered CONDOR's Closing Documents.
5.8 Registration Statement. The Registration Statement under which the
CONDOR Stock is registered shall be effective under the 1933 Act and no stop
order suspending the effectiveness of the Registration Statement shall be in
effect and no proceedings for such purpose shall be pending before or threatened
by the SEC. All applicable state securities laws shall have been complied with
in connection with the issuance of CONDOR Stock to be issued pursuant hereto,
and no stop order suspending the effectiveness of any qualification or
registration of such CONDOR Stock under such state securities laws shall have
been issued and pending or threatened by the authorities of any such state.
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5.9 Nasdaq Stock Market Additional Shares Notification. The CONDOR
Stock to be issued pursuant to this Agreement shall have been approved for
listing on the Nasdaq National Market, subject only to official notice of
issuance by CONDOR.
5.10 Opinion of Counsel. The STOCKHOLDERS shall have received an
opinion from Counsel to CONDOR, dated the Closing Date, substantially in the
form attached hereto as Exhibit 5.10.
5.11. Employee Bonuses. CONDOR shall have advanced the funds necessary
to enable POWERCREW to pay the Employee Bonuses.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF CONDOR
The obligations of CONDOR with respect to actions to be taken on the
Closing Date, are subject to the satisfaction or waiver on or prior to the
Closing Date, as the case may be, of all of the conditions set forth in this
Section 6. As of the Closing Date all conditions not satisfied shall be deemed
to have been waived by CONDOR unless it has objected by notifying the
STOCKHOLDERS in writing of such objection on or before the consummation of the
transactions on the Closing Date, except that no such waiver shall be deemed to
affect the survival of the representations and warranties of the STOCKHOLDERS
contained in Section 2 hereof.
6.1 Representations and Warranties. All the representations and
warranties of the STOCKHOLDERS contained in this Agreement shall be true and
correct in all material respects as of the Closing Date; and the STOCKHOLDERS
shall have delivered to CONDOR certificates dated the Closing Date and signed by
them to such effect.
6.2 Performance of Obligations. All of the terms, covenants and
conditions of this Agreement to be complied with or performed by the
STOCKHOLDERS on or before the Closing Date shall have been duly performed or
complied with in all material respects on or before the Closing Date and the
STOCKHOLDERS shall have delivered to CONDOR certificates dated the Closing Date
and signed by them to such effect.
6.3 No Litigation. No action or proceeding before a court or any other
Governmental Authority or body shall have been instituted or threatened to
restrain or prohibit the performance of this Agreement or the consummation of
the transactions contemplated herein.
6.4 Certificates. CONDOR shall have received a copy of POWERCREW's
Certificate or Articles of Incorporation, and all amendments thereto, certifying
the Pennsylvania Secretary of State, and a copy of POWERCREW's By-Laws, and all
amendments thereto, certifying POWERCREW's corporate secretary.
6.5 No Material Adverse Change. As of the Closing Date, no event or
circumstance shall have occurred with respect to POWERCREW which would
constitute a Material Adverse Effect on POWERCREW, and POWERCREW shall not have
suffered any material loss or damages to any of its properties or assets,
whether or not covered by insurance, which change, loss or damage materially
affects or impairs the ability of POWERCREW to conduct its business.
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6.6 STOCKHOLDERS' Releases. The STOCKHOLDERS shall have delivered to
CONDOR an instrument dated the Closing Date releasing POWERCREW from any and all
(a) claims prior to the Closing Date of STOCKHOLDERS against POWERCREW and
CONDOR and (b) obligations prior to the Closing Date, of POWERCREW and CONDOR to
the STOCKHOLDERS, except for (x) items specifically identified on Schedules 2.7
and 2.12 as being claims of or obligations to the STOCKHOLDERS, (y) continuing
obligations to the STOCKHOLDERS relating to their employment by POWERCREW and
(z) obligations arising under this Agreement or the transactions contemplated
hereby.
6.7 Termination of Agreements. Except as set forth on Schedule 6.7, (a)
all existing agreements between POWERCREW and the STOCKHOLDERS, and (b) all
agreements granting options to purchase POWERCREW Stock, shall have been
terminated, canceled or otherwise released prior to or as of the Closing Date.
6.8 Opinion of Counsel. CONDOR shall have received an opinion from
Counsel to the STOCKHOLDERS, dated the Closing Date, substantially in the form
attached hereto as Exhibit 6.8.
6.9 Consents and Approvals. All necessary consents of and filings with
any Governmental Authority relating to the consummation of the transactions
contemplated herein shall have been obtained and made and all necessary consents
and approvals of third parties, including those listed on Schedule 2.20, shall
have been obtained.
6.10 Good Standing Certificates. STOCKHOLDERS shall have delivered to
CONDOR a certificate, dated as of a date no earlier than ten (10) days prior to
the Closing Date, duly issued by the appropriate Governmental Authority in
POWERCREW's state of incorporation and, unless waived by CONDOR, in each state
in which POWERCREW is authorized to do business, showing POWERCREW is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for POWERCREW for all periods prior to the Closing
have been filed and paid.
6.11. A/R Aging Reports. Within ten (10) days prior to Closing, the
STOCKHOLDERS shall have provided CONDOR (a) an accurate list of all outstanding
receivables obtained subsequent to the Balance Sheet Date and as of a date which
is within ten (10) calendar days of the Closing Date and (b) an aging of all
such accounts and notes receivable showing amounts due in 30 day aging
categories (the "A/R Aging Reports").
6.12. STOCKHOLDER Closing Documents. The STOCKHOLDERS and POWERCREW
shall have executed and delivered the STOCKHOLDER Closing Documents.
6.13 Satisfaction. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall have been approved by counsel to CONDOR.
6.14. Board of Directors. CONDOR's Board of Directors shall have
approved the transactions contemplated hereby.
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7. COVENANTS OF CONDOR AND THE STOCKHOLDERS AFTER CLOSING
7.1. Options. CONDOR shall make available to POWERCREW for partial
1998, fiscal 1999, and fiscal 2000, non-qualified stock options under the CONDOR
Stock Option Plan, exercisable for an aggregate of Sixty Thousand (60,000)
shares of CONDOR Stock, for grant to such employees of POWERCREW (other than the
STOCKHOLDERS) as shall be mutually designated by CONDOR and senior management of
POWERCREW.
7.2. Restrictions on CONDOR Stock. Notwithstanding the fact that the
CONDOR Stock delivered to the STOCKHOLDERS shall be registered, each of the
STOCKHOLDERS agrees that, for a period of one (1) year after the delivery of
CONDOR Stock, Seventy Percent (70%) of the CONDOR Stock delivered to the
STOCKHOLDERS (or their permitted assignees) shall be restricted to prevent the
transfer of such CONDOR Stock. For the purposes of this Section 7.2, "transfer"
shall mean any voluntary or involuntary act by which a STOCKHOLDER makes, or
attempts or purports to make, or suffers to occur, any gift, sale, mortgage,
pledge, assignment, hypothecation, encumbrance or other disposition of any
CONDOR Stock, or interest therein, owned by him. The term "transfer" includes
any transfer which takes place upon the death of a STOCKHOLDER, whether by Last
Will and Testament, operation of law or otherwise, and also includes any
purported transfer, assignment, sale or other disposition by assignment or
operation of law, as a result of the appointment of a trustee in bankruptcy for
any STOCKHOLDER, under any judgment or order, as the result of the appointment
of a receiver for any STOCKHOLDER, or as a result of any assignment for the
benefit of creditors. Notwithstanding the foregoing, each STOCKHOLDER shall, for
estate planning purposes, have the right to transfer any CONDOR Stock restricted
by operation of this Section 7.2 to his spouse, lineal descendants, or a trust
for the benefit of either of them.
7.3. Section 338(h)(10) Election. STOCKHOLDERS covenant and agree that
they will cooperate fully with CONDOR in the event CONDOR elects to treat the
sale of the POWERCREW Stock pursuant to this Agreement as a deemed taxable sale
of all of POWERCREW's Assets to CONDOR pursuant to Section 338(h)(10) of the
Code (the "Election"). STOCKHOLDERS further agree that they will not take, or
cause to be taken, any action in connection with the filing of any tax return of
STOCKHOLDERS which would be inconsistent with or prejudice the Election, and
shall take no position contrary thereto or inconsistent therewith in any
discussion with or proceeding before any taxing authority, or otherwise.
7.4. Allocation of Purchase Price.
(a) In the event CONDOR makes the Election, the Purchase Price
shall be allocated, for income tax purposes, among the Company's assets in
accordance with Code Sections 338 and 1060 and any comparable provisions of
state, local or foreign law, as appropriate.
(b) As promptly as practicable (but in no event later than 90
calendar days following the Closing Date), CONDOR shall deliver to STOCKHOLDERS,
for STOCKHOLDERS' approval (which shall not be unreasonably withheld), a
proposed allocation of the Purchase Price as described in subsection 7.4(a)
above.
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7.5. Qualification to do Business. The STOCKHOLDERS shall take such
steps as are necessary, including the payment of fees and penalties, at their
sole expense, as shall be necessary to cause POWERCREW to be qualified to do
business in those jurisdictions in which POWERCREW's business or activities or
its ownership of assets before the Closing requires qualification under
applicable law. The STOCKHOLDERS shall exercise their best efforts to cause such
qualification(s) to be completed within thirty (30) days after Closing, and in
any event, as soon as practicable.
7.6. Continuation of POWERCREW. CONDOR agrees that it shall, through
December 31, 2000, continue the operation of POWERCREW as a wholly-owned
subsidiary of CONDOR, and that it shall not voluntarily cause the dissolution or
termination of its corporate existence.
8. INDEMNIFICATION
The STOCKHOLDERS, jointly and severally on the one hand, and CONDOR,
agree as follows:
8.1 General Indemnification by the STOCKHOLDERS. The STOCKHOLDERS,
jointly and severally, covenant and agree that they will indemnify, defend,
protect and hold harmless CONDOR and POWERCREW at all times, from and after the
date of this Agreement until the Expiration Date, from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and reasonable expenses of investigation) incurred by CONDOR and
POWERCREW as a result of or arising from:
(a) Any breach of the representations and warranties of the
STOCKHOLDERS set forth herein or on the schedules or certificates delivered in
connection herewith;
(b) Any breach of any agreement on the part of the
STOCKHOLDERS under this Agreement;
(c) Any obligations for payment or performance under any
Material Contract which, as of the Closing Date, is in an "overrun" (defined
below) position, to the extent of such overrun, and only if such overrun was not
accrued or otherwise reflected on the Financial Statements or the Closing Date
Balance Sheet. For the purposes hereof, a Material Contract shall be deemed to
be in an "overrun" position if the cost of POWERCREW's performance thereunder
exceeds the consideration payable thereunder, and the "overrun" shall be the
amount of such excess;
(d) Any obligation or liability resulting from POWERCREW's
failure to qualify to do business (before Closing) in any jurisdiction in which
the conduct of POWERCREW's business or activities or its ownership of assets
requires qualification under applicable law, whether or not such failure is
identified on Schedule 2.1; and
(e) Any obligation or liability reflected on Schedule 8.1
hereto, whether or not such obligation or liability has been excepted from the
representations and warranties of STOCKHOLDERS by disclosure on a Schedule or
otherwise.
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8.2 Indemnification by CONDOR. CONDOR covenants and agrees that it will
indemnify, defend, protect and hold harmless STOCKHOLDERS at all times from and
after the date of this Agreement until the Expiration Date, from and against all
claims, damages, actions, suits, proceedings, demands, assessments, adjustments,
costs and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by the STOCKHOLDERS as a
result of or arising from (a) any breach by CONDOR of its representations and
warranties set forth herein or on the schedules or certificates delivered in
connection herewith, or (b) any breach of any agreement on the part of CONDOR
under this Agreement.
8.3 Third Person Claims. Promptly after any party hereto (hereinafter
the "Indemnified Party") has received notice of or has knowledge of any claim by
a Third Person or of the commencement of any action or proceeding by a Person
not a party to this Agreement (a "Third Person"), the Indemnified Party shall,
as a condition precedent to a claim with respect thereto being made against any
party obligated to provide indemnification pursuant to Section 8.1 or 8.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any criminal proceeding
without the written consent of the Indemnified Party, such consent not to be
unreasonably withheld or delayed. If the Indemnifying Party undertakes to defend
or settle, it shall notify the Indemnified Party of its intention to do so
within fourteen (14) days, and the Indemnified Party shall cooperate, at the
Indemnifying Party's expense, with the Indemnifying Party and its counsel in the
defense thereof and in any settlement thereof. Such cooperation shall include,
but shall not be limited to, furnishing the Indemnifying Party with any books,
records or information reasonably requested by the Indemnifying Party that are
in the Indemnified Party's possession or control. All Indemnified Parties shall
endeavor to use the same counsel, which shall be the counsel selected by the
Indemnifying Party, provided that if counsel to the Indemnifying Party shall
have a conflict of interest in the opinion of such counsel that prevents counsel
for the Indemnifying Party from representing the Indemnified Party, the
Indemnified Party shall have the right to participate in such matter through
counsel of its own choosing and the Indemnifying Party will reimburse the
Indemnified Party for the reasonable expenses of its counsel and experts. After
the Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted
liability, except (i) as set forth in the preceding sentence and (ii) to the
extent such participation is requested by the Indemnifying Party, in which event
the Indemnified Party shall be reimbursed by the Indemnifying Party for
reasonable additional legal expenses and out-of-pocket expenses. If the
Indemnifying Party desires to accept a final and complete settlement of any such
Third Person claim and the Indemnified Party refuses to consent to such
settlement, then the Indemnifying Party's liability under this Section with
respect to such Third Person claim shall be limited to the amount so offered in
settlement to said Third Person, plus all indemnifiable costs and expenses
incurred to date, the Indemnifying Party shall be relieved of its duty to defend
and shall tender the Third Person claim back to the Indemnified Party, who shall
thereafter, at its own expense, be responsible for the defense and negotiation
of such Third Person claim. If the Indemnifying Party does not undertake to
defend such matter to which the Indemnified Party is entitled to indemnification
hereunder, or fails diligently to pursue such
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defense, the Indemnified Party may undertake such defense through counsel of
its choice, in which case: (a) the Indemnifying Party will reimburse the
Indemnified Party for the reasonable expenses of its counsel and necessary
experts, and (b) the Indemnified Party may settle such matter, and the
Indemnifying Party shall reimburse the Indemnified Party for the amount paid
in such settlement and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim
without the written consent of the Indemnifying Party, which consent shall
not be unreasonably withheld or delayed. All settlements hereunder shall
effect a complete release of the Indemnified Party, unless the Indemnified
Party otherwise agrees in writing. The parties hereto will make appropriate
adjustments for any Tax benefits, Tax detriments or insurance proceeds in
determining the amount of any indemnification obligation under this Section,
provided that no Indemnifying Party shall be obligated to seek any payment
pursuant to the terms of any insurance policy.
8.4. Limitations on Indemnification. Except as otherwise specifically
provided in this Agreement:
(a) Except for liability for breaches of the representations
and warranties contained in Section 2.19 hereof, and except for liability for
the claim of James Fitzgerald against POWERCREW identified in Schedule 8.1, for
which there shall be no minimum claim, CONDOR and the other Persons or entities
indemnified pursuant to Section 8.1 (other than the STOCKHOLDERS) shall not
assert any claim for indemnification hereunder against the STOCKHOLDERS until
such time as, and with respect to any individual claim, unless and until such
claim or claims, individually or in the aggregate, exceed Fifty Thousand Dollars
($50,000). The STOCKHOLDERS shall not assert any claim for indemnification
hereunder against CONDOR until such time as, and solely to the extent that, the
aggregate of all claims which the STOCKHOLDERS may have against CONDOR exceeds
Fifty Thousand Dollars ($50,000).
(b) CONDOR shall have the right, upon written notice, to
offset indemnification amounts due to it pursuant to this Agreement against
payments due to the STOCKHOLDERS under (i) this Agreement (including, without
limitation, the obligation to pay the Earnout Price) and/or (ii) any contract
contemplated by, or referred to in, this Agreement.
(c) Notwithstanding any other term of this Agreement, none of
the STOCKHOLDERS shall be liable under this Section 8 for an amount which
exceeds the amount of proceeds received by such STOCKHOLDER in connection with
this Agreement.
(d) Indemnity obligations hereunder may be satisfied through
the payment of cash or the delivery of CONDOR Stock, or a combination thereof,
in the discretion of the Indemnifying Party. For purposes of calculating the
value of the CONDOR Stock received or delivered by the STOCKHOLDERS (for
purposes of determining the amount of any indemnity paid), the value of CONDOR
Stock shall be determined as of the date of payment of the indemnity claim in
the manner described in Section 1.3(b) hereof.
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9. TERMINATION OF AGREEMENT
9.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date solely:
(a) by mutual consent of CONDOR and the STOCKHOLDERS;
(b) by CONDOR, on the one hand, or the STOCKHOLDERS, on the
other hand, if the transactions contemplated by this Agreement to take place at
the Closing shall not have been consummated by November 5, 1998, unless the
failure of such transactions to be consummated is due to the willful failure of
the party seeking to terminate this Agreement to perform any of its obligations
under this Agreement to the extent required to be performed by it prior to or on
the Closing Date; or
(c) by the STOCKHOLDERS on the one hand, or by CONDOR, on the
other hand, if a material breach or default shall be made by the other party in
the observance or in the due and timely performance of any of the covenants,
agreements or conditions contained herein, and the curing of such default shall
not have been made on or before the Closing Date.
9.2 Liabilities in Event of Termination. The termination of this
Agreement will in no way limit any obligation or liability of any party based on
or arising from a breach or default by such party with respect to any of its
representations, warranties, covenants or agreements contained in this
Agreement, including, but not limited to, legal and audit costs and out of
pocket expenses.
10. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
10.1 STOCKHOLDERS. STOCKHOLDERS recognize and acknowledge that they
have in the past, currently have, and in the future may have, access to certain
confidential information of POWERCREW and/or CONDOR, such as operational
policies, and pricing and cost policies that are valuable, special and unique
assets of POWERCREW's and/or CONDOR's respective businesses. STOCKHOLDERS agree
that they will not disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of CONDOR who need to know information
in connection with the transactions contemplated hereby, who have been informed
of the confidential nature of such information and who have agreed to keep such
information confidential as provided hereby, (b) following the Closing, such
information may be disclosed by STOCKHOLDERS as is required in the course of
performing his duties for CONDOR or POWERCREW, and (c) to counsel and other
advisers, provided that such advisers (other than counsel) agree to the
confidentiality provisions of this Section 10.1, unless (i) such information
becomes known to the public generally through no fault of the STOCKHOLDERS, (ii)
disclosure is required by law or the order of any Governmental Authority under
color of law; provided, that prior to disclosing any information pursuant to
this clause (ii), the STOCKHOLDERS shall, if possible, give prior written notice
thereof to CONDOR and provide CONDOR with the opportunity to contest such
disclosure, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party. In the event the transactions contemplated by this Agreement
are not consummated, none of the STOCKHOLDERS shall have any of the
above-mentioned restrictions on their ability to disseminate confidential
information with respect to POWERCREW.
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10.2 CONDOR. CONDOR recognizes and acknowledges that it had in the
past, currently has, and in the future may have, access to certain confidential
information of POWERCREW, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of POWERCREW's business.
CONDOR agrees that, prior to the Closing, or if the transactions contemplated by
this Agreement are not consummated, they will not disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to the STOCKHOLDERS and to
authorized representatives of POWERCREW, (b) to counsel and other advisers,
provided that such advisors (other than counsel) agree to the confidentiality
provisions of this Section 10.2, unless (i) such information becomes known to
the public generally through no fault of CONDOR, (ii) disclosure is required by
law or the order of any Governmental Authority under color of law; provided,
that, prior to disclosing any information pursuant to this clause (ii), CONDOR
shall, if possible, give prior written notice thereof to POWERCREW and the
STOCKHOLDERS and provide POWERCREW and the STOCKHOLDERS with the opportunity to
contest such disclosure, or (iii) the disclosing party reasonably believes that
such disclosure is required in connection with the defense of a lawsuit against
the disclosing party. In the event of a breach or threatened breach by CONDOR of
the provisions of this Section, POWERCREW and the STOCKHOLDERS shall be entitled
to an injunction restraining CONDOR from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting
POWERCREW and the STOCKHOLDERS from pursuing any other available remedy for such
breach or threatened breach, including the recovery of damages.
10.3 Damages. Because of the difficulty of measuring economic losses as
a result of the breach of the foregoing covenants in Sections 10.1 and 10.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
Nothing herein shall be construed as prohibiting a party hereto from pursuing
any other available remedy for such breach or threatened breach of Sections 10.1
and 10.2, including the recovery of damages.
10.4 Survival. The obligations of the parties under this Article 10
shall survive the termination of this Agreement for a period of five years from
the Closing Date.
11. GENERAL
11.1 Cooperation. STOCKHOLDERS and CONDOR shall each deliver or cause
to be delivered to the other on the Closing Date, and at such other times and
places as shall be reasonably agreed to, such additional instruments as the
other may reasonably request for the purpose of carrying out this Agreement.
STOCKHOLDERS will cooperate and use their reasonable efforts to have the present
officers, directors and employees of POWERCREW cooperate with CONDOR on and
after the Closing Date in furnishing information, evidence, testimony and other
assistance in connection with any Tax Return filing obligations, actions,
proceedings, arrangements or disputes of any nature with respect to matters
pertaining to all periods prior to the Closing Date.
11.2 Successors and Assigns. This Agreement and the rights of the
parties hereunder may not be assigned (including by operation of law) without
the consent of the other party and shall be binding
39
<PAGE>
upon and shall inure to the benefit of the parties hereto, the successors of
CONDOR, and the heirs and legal representatives of the STOCKHOLDERS.
Notwithstanding the foregoing, the STOCKHOLDERS shall have the right to
assign up to Fifteen Percent (15%) of their rights to receive Earnout Price
to a corporation, partnership, limited liability company, or other entity,
which is controlled by them, provided, however, that no such assignment shall
otherwise vary the terms and conditions respecting the Earnout Price.
11.3 Entire Agreement. This Agreement (including the Schedules,
exhibits and annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the STOCKHOLDERS
and CONDOR and supersede any prior agreement and understanding relating to the
subject matter of this Agreement. This Agreement, upon execution, constitutes a
valid and binding agreement of the parties hereto enforceable in accordance with
its terms and may be modified or amended only by a written instrument executed
by the STOCKHOLDERS and CONDOR.
11.4 Counterparts; Facsimile Signatures. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original and all of which together shall constitute but one and the same
instrument. Signatures may be exchanged by telecopy, and each party agrees that
it will be bound by its telecopied signature and that it accepts the telecopied
signatures of the other parties to this Agreement.
11.5 Brokers and Agents. The STOCKHOLDERS have engaged Ambassador
Capital Corporation to serve as their broker and investment banker; CONDOR has
employed no broker or agent in connection with this transaction. Each party
agrees to indemnify the other parties hereto against all loss, cost, damages or
expense arising out of claims for fees or commissions of brokers employed or
alleged to have been employed by such indemnifying party.
11.6 Expenses. Each party shall each bear its own expenses incurred in
connection with the transactions contemplated by this Agreement.
11.7 Notices. All notices or communications required or permitted
hereunder shall be in writing and shall be deemed to have been given when
personally delivered or upon receipt if sent by first class certified mail,
return receipt requested or the next business day if sent by telex (receipt
confirmed and followed up by one of the other delivery methods discussed herein
as well), or upon delivery if sent by express mail, in each case postage prepaid
and addressed as follows:
(a) If to CONDOR:
Annapolis Office Plaza
170 Jennifer Road, Suite 325
Annapolis, Maryland 21401
Attention: John F. McCabe, Esquire
40
<PAGE>
with copies to:
Whiteford, Taylor & Preston L.L.P.
Seven Saint Paul Street
Baltimore, Maryland 21202
Attn: William M. Davidow, Jr., Esq.
(b) If to the STOCKHOLDERS:
PowerCrew, Inc.
The Commons at Great Valley
17 General Warren Blvd.
Malvern, Pennsylvania 19355
with copies to:
John A. Featherman, III, Esquire
MacElree, Harvey, Gallagher, Featherman & Sebastian, Ltd.
17 West Miner Street
P.O. Box 660
West Chester, Pennsylvania 19381
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 11.7 from time to time.
11.8 Governing Law. This Agreement shall be construed in accordance
with the laws of the State of Maryland, except that matters herein within the
purview of the matters covered by the General Corporation Law of the State of
Delaware shall be governed by such General Corporation Law, in each case without
reference to conflicts of laws principles.
11.9 Exercise of Rights and Remedies. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
11.10 Time. Time is of the essence with respect to this Agreement.
11.11 Reformation and Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
41
<PAGE>
11.12 Remedies Cumulative. No right, remedy or election given by any
term of this Agreement shall be deemed exclusive but each shall be cumulative
with all other rights, remedies and elections available at law or in equity.
11.12. Captions. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
11.14 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of CONDOR and the STOCKHOLDERS. Any amendment or waiver effected
in accordance with this Section 11.14 shall be binding upon each of the parties
hereto and their successors or assigns.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
42
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Stock
Purchase Agreement as of the day and year first above written.
CONDOR:
CONDOR TECHNOLOGY SOLUTIONS, INC.
By: /s/John F. McCabe
-----------------------------------
STOCKHOLDERS:
/s/ Peter T. Duflo
-----------------------------------
PETER T. DUFLO
/s/ Robert Genzano
-----------------------------------
ROBERT GENZANO
POWERCREW, INC.
By: /s/ Peter T. Duflo
-----------------------------------
43
<PAGE>
Exhibit 11
CONDOR TECHNOLOGY SOLUTIONS, INC.
COMPUTATIONS OF EARNINGS PER SHARE
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -------------------
1998 1997 1998 1997
------- ------- ------ ------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding:
Average shares outstanding during period 11,198 1,680 9,779 1,619
------- ------- ------- -------
Total basic weighted average
common shares 11,198 1,680 9,779 1,619
------- ------- ------- -------
------- ------- ------- -------
Stock Options, as if converted 5 -- 39 --
Contingent purchase price adjustment 393 -- 132 --
------- ------- ------- -------
Total diluted weighted average
common shares 11,596 1,680 9,950 1,619
------- ------- ------- -------
------- ------- ------- -------
Net income (loss) applicable to common shares:
Net income (loss) $ 3,002 $ (731) $ 2,023 $ (831)
------- ------- ------- -------
------- ------- ------- -------
Income (loss) per basic common share $ 0.27 $ (0.44) $ 0.21 $ (0.51)
------- ------- ------- -------
------- ------- ------- -------
Income (loss) per diluted common share $ 0.26 $ (0.44) $ 0.20 $ (0.51)
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINACIAL INFORMATION EXTRACTED FROM SEPTEMBER 30,
1998 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JUL-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 6,885 6,885
<SECURITIES> 167 167
<RECEIVABLES> 35,783 35,783
<ALLOWANCES> (974) (974)
<INVENTORY> 481 481
<CURRENT-ASSETS> 44,757 44,757
<PP&E> 7,414 7,414
<DEPRECIATION> (3,777) (3,777)
<TOTAL-ASSETS> 139,339 139,339
<CURRENT-LIABILITIES> 34,321 34,321
<BONDS> 0 0
0 0
0 0
<COMMON> 112 112
<OTHER-SE> 101,516 101,516
<TOTAL-LIABILITY-AND-EQUITY> 139,339 139,339
<SALES> 17,662 54,989
<TOTAL-REVENUES> 45,007 114,358
<CGS> 15,771 49,814
<TOTAL-COSTS> 28,880 78,494
<OTHER-EXPENSES> 10,582 30,249
<LOSS-PROVISION> 300 300
<INTEREST-EXPENSE> 54 (517)
<INCOME-PRETAX> 5,509 6,175
<INCOME-TAX> 2,507 4,152
<INCOME-CONTINUING> 3,002 2,023
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,002 2,023
<EPS-PRIMARY> 0.27 0.21
<EPS-DILUTED> 0.26 0.20
</TABLE>
